Perez v. American Home Mortgage Servicing, Inc. et al

Filing 21

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND VACATING HEARING by Judge William Alsup [granting 5 Motion to Dismiss]. (whasec, COURT STAFF) (Filed on 4/23/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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PETRA S. PEREZ, an individual,

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For the Northern District of California

United States District Court

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Plaintiff,

No. C 12-00932 WHA

v.
AMERICAN HOME MORTGAGE
SERVICING, INC.; MORTGAGE
ELECTRONIC REGISTRATION SYSTEM,
INC.; T.D. SERVICE COMPANY; and
DOES 1 through 50, inclusive,

ORDER GRANTING
DEFENDANTS’ MOTION
TO DISMISS AND
VACATING HEARING

Defendants.
/
INTRODUCTION
In this action for wrongful foreclosure, defendants American Home Mortgage Servicing,

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Inc., and Mortgage Electronic Registration System, Inc., move to dismiss pursuant to

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FRCP 12(b)(6) or, in the alternative, for a more definite statement and to strike portions

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of the complaint. For the reasons stated below, defendants’ motion to dismiss is GRANTED.

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STATEMENT

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Only two relevant facts appear in plaintiff’s nearly thirty page complaint: Plaintiff

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financed the subject property on December 1, 2006, through American Brokers Conduit.

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Plaintiff was notified of default on April 5, 2010 (Compl. ¶¶ 7, 11).

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Otherwise, the complaint attacks the legitimacy of the deed, its recording, and the notice
of default and sale of the subject property. The thrust of plaintiff’s contentions is that “MERS

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is not the Beneficiary but is used to hide the true identity of the Beneficiary,” and that, “[b]ased

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on this failure to disclose, and the lack of consideration paid by MERS,” the deed of trust, as

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well as the sale thereof, is void. Plaintiff also alleges that the default was the direct result of the

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high payments, structure, and interest rate on the loan, and that plaintiff’s performance on the

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loan was excused due to a breach by defendants (Compl. ¶¶ 9, 11).

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Both sides are represented by counsel. The complaint alleges seven claims for relief:

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(1) violation of California Civil Code Section 2923.6; (2) violation of California Business and

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Professions Code Section 17200; (3) injunctive relief; (4) violation of California Civil Code

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Section 1572; (5) fraud; (6) intentional misrepresentation; and (7) wrongful foreclosure
in violation of California Civil Code Sections 2923.5 and 2924. Defendants contend plaintiff

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For the Northern District of California

United States District Court

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has failed to adequately allege any of these claims. This order agrees.

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ANALYSIS

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To survive a motion to dismiss, a complaint must contain sufficient factual matter,

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accepted as true, to state a claim to relief that is plausible on its face. FRCP 12(b)(6);

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Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). A claim is facially plausible when there are

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sufficient factual allegations to draw a reasonable inference that defendants are liable for the

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misconduct alleged. While a court “must take all of the factual allegations in the complaint as

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true,” it is “not bound to accept as true a legal conclusion couched as a factual allegation.”

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Id. at 1949–50 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “[C]onclusory

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allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for

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failure to state a claim.” Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996)

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(citation omitted).

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FRCP 9(b) requires that in all averments of fraud the circumstances constituting fraud

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must be stated with particularity. Malice, intent, knowledge, and other conditions of a person’s

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mind may be alleged generally. “Averments of fraud must be accompanied by ‘the who, what,

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when, where, and how’ of the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d

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1097, 1106 (9th Cir. 2003) (citation omitted). FRCP 9(b) serves to give defendants notice of the

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specific fraudulent conduct against which they must defend. See Bly-Magee v. California,

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236 F.3d 1014, 1018 (9th Cir. 2001).
DEFENDANTS’ REQUEST FOR JUDICIAL NOTICE.

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Defendants request that judicial notice be taken of the following documents: (1) a deed

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of trust recorded with the Alameda County Recorder’s Office on December 1, 2006, as document

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number 2006442120; (2) a notice of default, recorded with the Alameda County Recorder’s

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Office on July 18, 2011, as document number 2011200015; (3) an assignment of deed of trust,

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recorded with the Alameda County Recorder’s Office on July 20, 2011, as document number

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2011202483; (4) a substitution of trustee, recorded with the Alameda County Recorder’s Office
on October 4, 2011, as document number 2011281524; and (5) a notice of trustee’s sale,

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For the Northern District of California

United States District Court

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recorded with the Alameda County Recorder’s Office on October 14, 2011, as document

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number 2011292866 (RJN at 2). These documents are matters of public record not generally

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subject to dispute. Judicial notice of these documents is appropriate under Federal Rule of

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Evidence 201. Defendants’ request for judicial notice of these five documents is accordingly

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GRANTED.

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These documents show that defendant T.D. Service Company, not a moving party,

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recorded a notice of default against the property in July 2011. Also in July 2011, the lender’s

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interest in the property was assigned to Deutsche Bank National Trust Company. In October

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2011, Power Default Services, Inc. was substituted as trustee. Also in October 2011, a notice

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of trustee’s sale was recorded by defendant T.D. Service Company, announcing a sale of the

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subject property scheduled for November 9, 2011. While defendants state the sale did not take

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place at that time, the complaint appears to contend that a sale has occurred (Br. 2; RJN

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Exhs. 2–5; Compl. ¶ 108).
CALIFORNIA CIVIL CODE SECTION 2923.6.

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2.

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Plaintiff alleges violations of Section 2923.6 against all defendants. Section 2923.6

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provides:
(a) The legislature finds and declares that any duty servicers may
have to maximize net present value under their pooling and
servicing agreement is owed to all parties in a loan pool, not to any
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particular parties, and that a servicer acts in the best interests of all
parties if it agrees to or implements a loan modification or workout
plan for which both of the following apply:

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(1) The loan is in payment default, or payment default
is reasonably foreseeable.

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(2) Anticipated recovery under the loan modification or
workout plan exceeds the anticipated recovery through
foreclosure on a net present value basis.

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(b) It is the intent of the Legislature that the mortgagee,
beneficiary, or authorized agent offer the borrower a loan
modification or workout plan if such a modification is consistent
with its contractual or other authority.

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Although our court of appeals has not yet weighed in on this issue, district courts in this circuit

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For the Northern District of California

Section 2923.6 does not operate substantively to provide a private right of action.

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United States District Court

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have found “that the legislative history, intent, and plain language of [Section] 2923.6 makes

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it clear that servicers are not obligated to offer loan modifications to borrowers,” and it does not

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provide a private claim for relief to borrowers. Bulaoro v. Oro Real, Inc., 2011 WL 6372458,

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at *9 (N.D. Cal. Dec. 20, 2011) (Alsup, J.) (quoting Dizon v. Cal. Empire Bancorp, Inc.,

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2009 WL 3770695, at *5 (C.D. Cal. Nov. 9, 2009) (Snyder, J.)). Because the statute does

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not provide a private claim, plaintiff’s claim for relief under Section 2923.6 necessarily fails.

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Moreover, plaintiff fails to allege sufficient facts under this heading to support a claim

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under any theory. No specific conduct on the part of any defendant is alleged. Instead, plaintiff

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makes a series of statements related to the scope of Section 2923.6 and foreclosures in general:

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The Joint Economic Committee of Congress estimated in June,
2007, that the average foreclosure results in $77,935.00 to the
homeowner, lender, local government, and neighbors . . . Of the
$77,935.00 in foreclosure costs, the Joint Economic Committee
of Congress estimates that the lender will suffer $50,000.00
in costs in conducting a non-judicial foreclosure on the property,
maintaining, rehabilitating, insuring, and reselling the property
to a third party. Freddie Mac places this loss higher at $58,759.00.

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(Compl. ¶¶ 58–59). These hyperbolic pronouncements cannot support a claim for relief.
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Accordingly, plaintiff’s claim for violation of Section 2923.6 is DISMISSED WITHOUT LEAVE
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TO AMEND.

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CALIFORNIA BUSINESS AND PROFESSIONS CODE SECTION 17200.

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To state a claim for unfair competition pursuant to Section 17200, a plaintiff must allege

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that a defendant engaged in an “unlawful, unfair, or fraudulent business act or practice” or

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in “unfair, deceptive, untrue or misleading advertising.” CAL. BUS. & PROF. CODE § 17200.

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The complaint fails to state a claim under all three prongs of the statute.
Plaintiff alleges that all defendants “committed acts of unfair competition . . . by

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engaging in the following practices:” Immediately following this statement, however, plaintiff

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refers to “[t]hese acts and practices, as described in the previous paragraphs,” without describing

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what conduct is being referenced (Compl. ¶¶ 64–65). The only act or practice alleged in the

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complaint is a failure to disclose the beneficiary of the deed of trust (id. ¶¶ 8–9, 11, 13, 19).

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For the Northern District of California

United States District Court

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First, this order finds the complaint fails to sufficiently allege the violation of any law
by defendants. Accordingly, plaintiff’s claim under the “unlawful” prong of Section 17200 fails.
Second, “[t]he term ‘unfair . . . business act or practice’ . . . mean[s] deceptive conduct

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that injures consumers and competitors.” Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel.

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Co., 20 Cal. 4th 163, 195–96 (1999). The complaint fails to allege any fact demonstrating that

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defendants engaged in deceptive conduct that caused plaintiff injury. Even taken as true,

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plaintiff’s allegations are woefully insufficient.

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Finally, to the extent that plaintiff’s Section 17200 claim rests on the “fraudulent” prong

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of the statute, it also fails to state a claim for relief. Allegations of fraudulent conduct under

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Section 17200 must satisfy the heightened pleading requirements of FRCP 9(b). As stated

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above, FRCP 9(b) requires allegations of fraud to “the who, what, when, where, and how” of the

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misconduct charged. Only the “when” requirement is arguably met by plaintiff’s complaint —

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December 2006, and “continuing to the present time” (Compl. ¶ 64). Accordingly, plaintiff’s

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Section 17200 claim is DISMISSED.

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FRAUD CLAIMS.

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Plaintiff alleges violations of California Civil Code Section 1572, common law fraud,

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and intentional misrepresentation against all defendants. The elements of a fraud claim are:

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(1) defendant misrepresents or conceals material facts; (2) with knowledge of the falsity of the
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representations or the duty of disclosure; (3) with intent to defraud or induce reliance; (4) which

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induces justifiable reliance by the plaintiff; (5) to his or her detriment. Hahn v. Mirda, 147 Cal.

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App. 4th 740, 748 (2007). In order to prevail, the plaintiff must allege and prove that he or she

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actually relied upon the misrepresentations and, in the absence of fraud, would not have entered

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into the contract or transaction. Mega Life & Health Ins. Co. v. Superior Court, 172 Cal. App.

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4th 1522, 1530 (2009). Plaintiff fails to allege facts sufficient to give defendants notice of the

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specific fraudulent conduct against which they must defend. Specifically, the complaint does not

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state how plaintiff relied upon the alleged misrepresentation or how this reliance was

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detrimental.
Plaintiff’s fraud claims appear to hinge on the allegation that the notice of default was

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For the Northern District of California

United States District Court

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defective and did not disclose the true beneficiary of the deed of trust. Plaintiff alleges that

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defendants were collectively engaged in a “scheme the purpose of which was to execute loans

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secured by real property in order to make commissions, kick-backs, illegal and undisclosed yield

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spread premiums and undisclosed profits.” Plaintiff alleges reliance on defendants’ failure to

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disclose the true beneficiary and “because of his reliance his property will be foreclosed”

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(Compl. ¶¶ 93–102). Plaintiff does not state, however, that he took any action or refrained from

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taking any action as a result of defendants’ alleged failure to disclose the true beneficiary of the

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deed of trust.

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Plaintiff also alleges that “had the terms of the loan been accurately represented and

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disclosed by defendants and/or defendants’ predecessors, plaintiff would not have accepted the

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loan nor been harmed” and that “defendants . . . conspired and agreed to commit the above

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mentioned fraud” (id. ¶¶ 87–89). Nowhere does plaintiff state whose or what misrepresentations

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or failures to disclose induced plaintiff to accept the loan.

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Moreover, California Code of Civil Procedure Section 338(d) imposes a three-year

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statute of limitations on fraud-based claims. The loan was executed in December 2006, and this

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action was initiated in January 2012. In order to allege this claim more than two years

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past its expiration date, plaintiff must plead some basis for suspending the limitations period.

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Plaintiff’s statement that “as an unsophisticated customer, plaintiff could not have discovered
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the true nature of the material facts on his own” does not suffice. Nowhere does plaintiff allege

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when or what relevant facts were discovered giving rise to this claim. Plaintiff’s opposition brief

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(Opp. 9) also appears to assert new fraud claims against “Chase,” though “Chase” is not named

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as a defendant in this action and does not appear to have been involved in any of the transactions

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at issue (Reply Br. 9). Because the complaint fails to sufficiently allege plaintiff’s fraud claims,

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these claims are DISMISSED.

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5.

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Plaintiff alleges violations of California Civil Code Sections 2923.5 and 2924 against

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all defendants. Specifically, plaintiff alleges defendants failed to record the assignment prior

WRONGFUL FORECLOSURE.

to commencing the foreclosure such that the foreclosure failed to comply with procedural

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For the Northern District of California

United States District Court

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requirements. Plaintiff also alleges the declaration on the notice of default was missing.

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As an initial matter, “the remedy for noncompliance [with Section 2923.5] is a simple

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postponement of the foreclosure sale, nothing more.” Mabry v. Superior Court, 185 Cal. App.

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4th 208, 214 (2010). Section 2923.5 provides that the lender must notify the borrower and

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help her assess her options for modification but need not automatically provide modification.

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Id. at 214. The complaint contains conflicting statements as to whether a foreclosure sale has

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occurred (Compl. ¶¶ 108, 117; 27:3–4). Because plaintiff appears to seek a temporary injunction

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requiring postponement of the sale and no documentation of a completed sale has been provided,

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this order will assume a sale has not yet occurred. Contrary to defendants’ contention, a

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borrower need not tender the full amount of indebtedness to be entitled to her rights under

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Section 2923.5. Mabry, 185 Cal. App. 4th at 225–31.

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Under Section 2923.5, any notice of default must include a declaration stating that

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the mortgagee “has contacted the borrower, [or] has tried with due diligence to contact the

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borrower.” Id. at 235. Plaintiff’s statement that “we need not look any farther than the notice

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of default to find the declaration is missing or is invalid” is baffling, as the notice of default

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plainly includes a Section 2923.5 declaration (RJN Exh. 2 at 2). Plaintiff does not dispute

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the authenticity of the recorded notice or non-receipt thereof.

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Plaintiff also attacks the personal knowledge of the Section 2923.5 declarant but

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does not allege defendants failed to contact plaintiff to assess options for modification.

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A Section 2923.5 declaration need not be under penalty of perjury and the declarant need not

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be the same person who, in fact, contacted the borrower. Moreover, each notice of default need

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not be separately drafted in order to comply with Section 2923.5. Mabry, 185 Cal. App. 4th

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at 233–34. The complaint appears to allege plaintiff was notified of default in April, 2010 —

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more than a year prior to the recorded notice (Compl. ¶ 11).

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Finally, Section 2924 allows “the trustee, mortgagee, or beneficiary” to file and record

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a notice of default and begin the foreclosure process. Recording is not a required prerequisite
to initiating foreclosure, however. “California law does not require possession of the note

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For the Northern District of California

United States District Court

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as a precondition to non-judicial foreclosure under a deed of trust . . . Pursuant to section

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2924(a)(1) [], the trustee of a Deed of Trust has the right to initiate the foreclosure process.

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Production of the original note is not required to proceed with a non-judicial foreclosure.”

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Pagtalunan v. Reunion Mortgage Inc., 2009 WL 961995, at *1 (N.D. Cal. 2009) (Laporte,

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Mag. J.). The trustee has the power and the duty to initiate foreclosure proceedings on the

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property upon the trustor’s default, resulting in a sale of the property. Lomboy v. SCME Mortg.

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Bankers, 2009 WL 1457738, at *5 (N.D. Cal. 2009) (Conti, J.). Because plaintiff has failed to

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sufficiently identify how (and which) defendants failed to comply with Sections 2923.5 and

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2924, these claims are DISMISSED.

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DECLARATORY AND INJUNCTIVE RELIEF.

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Plaintiff seeks “a determination as to the legal status of the parties as to the Adjustable

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Rate Note and the Deed of Trust” (Compl. ¶ 70). While plaintiff refers only to “injunctive

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relief,” the complaint appears to also seek a declaratory judgment.

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These claims are actually requests for remedies — to weigh them, the court must look

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to the underlying claims. See Boeing Co. v. Cascades Corp., 207 F.3d 1177, 1192 (9th Cir.

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2000). Until plaintiff’s claims are finally determined, it is impossible for this order to say that

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declaratory relief and injunctive relief will not be appropriate.

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CONCLUSION
Because this order finds plaintiff has insufficiently pleaded each alleged claim for relief,

attorney’s fees. For the foregoing reasons, defendants’ motion to dismiss is GRANTED.

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Plaintiff’s claim for violation of California Civil Code Section 2923.6 is DISMISSED WITHOUT

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LEAVE TO AMEND.

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The hearing scheduled for April 26, 2012 is hereby VACATED. Plaintiff may seek leave to

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amend the complaint and will have FOURTEEN CALENDAR DAYS from the date of this order

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to file a motion, noticed on the normal 35-day track, for leave to file an amended complaint.

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A proposed amended complaint must be appended to the motion. The motion should clearly

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For the Northern District of California

it need not consider plaintiff’s further allegations of entitlement to punitive damages and

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United States District Court

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explain how the amendments to the complaint cure the deficiencies identified herein.

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Counsel for plaintiff is strongly encouraged to limit the proposed amended complaint to the

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facts and allegations giving rise to plaintiff’s claims and to exclude references to the general

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public and average borrowers.

All other claims asserted against the moving defendants are DISMISSED.

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IT IS SO ORDERED.

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Dated: April 23, 2012.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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