Wyman et al v. First American Title Insurance Company et al

Filing 26

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND by Judge William Alsup [granting 5 Motion to Dismiss]. Amended Complaint due by NOON on 3/2/2017. Motion to Dismiss due by NOON on 3/16/2017. (whasec, COURT STAFF) (Filed on 2/8/2017)

1
2
3
4
5

IN THE UNITED STATES DISTRICT COURT

6
FOR THE NORTHERN DISTRICT OF CALIFORNIA
7
8
9

JOSEPH R. WYMAN, LISA D. WYMAN,

11
For the Northern District of California

United States District Court

10

12
13
14
15

Plaintiffs,

No. C 16-07079 WHA

v.
FIRST AMERICAN TITLE INSURANCE
COMPANY, WELLS FARGO BANK, N.A.,
as Trustee for Wells Fargo Asset Securities
Corporation, Mortgage-Pass Through Certificates,
Series 2006-AR18, WELLS FARGO BANK, N.A.,
and DOES 1 THROUGH 35 INCLUSIVE,

ORDER GRANTING
MOTION TO DISMISS
WITH LEAVE TO AMEND

Defendants.

16

/

17
INTRODUCTION

18
19
20

In this wrongful foreclosure action, a bank defendant moves to dismiss. To the extent
stated herein, the motion is GRANTED.
STATEMENT

21
22

1.

LOAN AND DEFAULT.

23

In August 2006, pro se plaintiffs Joseph Wyman and Lisa Wyman obtained a mortgage

24

loan in the amount of $704,000 from defendant Wells Fargo Bank secured by a deed of trust on

25

real property in Oakland (RJN, Exh. A). The complaint does not state whether the Wymans

26

resided at this property; however, at oral argument, Mr. Wyman stated that both plaintiffs reside

27

at the property. The deed identified Wells Fargo as the beneficiary, third-party Fidelity National

28

Title Insurance Company as the trustee, and plaintiffs as the borrowers (RJN, Exh. B).

1

On April 6, 2011, Wells Fargo recorded an assignment of the deed of trust to transfer

2

and convey the beneficial interest in the residence to third-party HSBC Bank USA, N.A., in its

3

capacity as trustee of a securitized trust. Wells Fargo remained the servicing agent.

4

In 2012, Wells Fargo recorded a modification to plaintiffs’ loan (RJN, Exh. D).

5

On May 17, 2016, Wells Fargo recorded a substitution of trustee that changed the trustee for the

6

loan from Fidelity to First American Title Insurance Company (RJN, Exh. E). On May 20, 2016,

7

a notice of default was recorded. According to the notice of default, the past due payments

8

totaled $51,927.58 (RJN, Exh. F). (Plaintiffs contend the notice fails to accurately depict the

9

amount of indebtedness (Compl. ¶ 17).) In July 2016, First American recorded a notice of

11
For the Northern District of California

United States District Court

10

rescission of the May 2016 notice of default (RJN, Exh. G).
On November 17, 2016, Wells Fargo recorded a substitution of trustee, substituting Clear

12

Recon Corporation for First American (RJN, Exh. H). On the same day, Clear Recon, in its

13

capacity as the appointed substituted trustee, recorded a new notice of default which noted

14

plaintiffs’ default on the loan in the accurate amount of $45,791.84 as of November 14, 2016

15

(RJN, Exhs. H, I).

16
17

To date, no trustee’s sale has occurred. There is no indication that plaintiffs are ready to
tender the unpaid portion of the loan.

18

2.

19

In December 2010, plaintiffs filed a Chapter 13 bankruptcy petition and initial

20

bankruptcy schedules (RJN, Exhs. J, K). In April 2011, plaintiffs’ Chapter 13 plan received

21

confirmation (RJN, Exh. L). Wells Fargo promptly obtained an order granting relief from the

22

automatic stay (RJN, Exh. J). In March 2012, plaintiffs filed amended bankruptcy schedules

23

(RJN, Exh. M). On April 15, 2016, the Chapter 13 case was discharged due to full performance

24

of the plaintiffs’ Chapter 13 plan (RJN, Exh. N). During the bankruptcy proceedings, plaintiffs

25

acknowledged Wells Fargo as a secured lender for the subject property. However, in their

26

schedules of December 2010 and March 2012, they failed to list the claims they eventually

27

brought in the instant complaint against Wells Fargo (RJN, Exhs. K, M).

BANKRUPTCY.

28
2

1

In November 2016, before Wells Fargo substituted Clear Recon as trustee (but after First

2

American rescinded the first notice of default), plaintiffs commenced this action in Alameda

3

County Superior Court. Plaintiffs’ theory was and remains that Wells Fargo lacks beneficial

4

interest in the deed and asserts various claims described below. In December 2016, defendant

5

Wells Fargo removed the action to federal court, here in San Francisco based on diversity

6

jurisdiction. Although no motion to remand has been made, plaintiffs’ opposition complains that

7

removal was improper because defendant First American (no longer the trustee) is a citizen of

8

California. This order declines to consider remand absent a motion timely brought. Wells Fargo

9

now moves to dismiss the complaint. This order follows full briefing and oral argument.
ANALYSIS

11
For the Northern District of California

United States District Court

10

Plaintiffs seek to rescind “the loan and all accompanying loan documents” and to

12

permanently prevent the foreclosure of the subject property by challenging Well Fargo’s

13

standing to foreclose (Compl. ¶¶ 41–50, 114, 130). In addition, plaintiffs assert claims for

14

predatory lending, violations of the Homeowner’s Bill of Rights and the Business and

15

Professions Code Section 17200 for unfair, unlawful and fraudulent business practices,

16

constructive fraud, fraud in concealment and fraud in the inducement all relating to Wells

17

Fargo’s alleged securitization of the loan (Compl. ¶¶ 52–53, 61–63, 80, 85, 95). Plaintiffs’

18

claims are anchored in the allegation that the March 2011 assignment of the deed of trust to

19

HSBC Bank was unlawfully recorded so that it therefore was “void and of no force and effect,”

20

that the May 2016 substitution of trustee from Fidelity to First American was void, and that the

21

May 2016 notice of default was “unlawfully recorded” (Compl. ¶¶ 13–6).

22

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

23

accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S.

24

662 (2009). A claim is facially plausible when there are sufficient factual allegations to draw a

25

reasonable inference that the defendant is liable for the conduct alleged. While a court “must

26

take all of the factual allegations in the complaint as true,” it is “not bound to accept as true a

27

legal conclusion couched as a factual allegation.” Id. at 1949–50 (quoting Bell Atl. Corp. v.

28

Twombly, 550 U.S. 544, 555 (2007)) (internal quotation marks omitted). “[C]onclusory
3

1

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

2

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

3

(citation omitted).

4

In considering a motion to dismiss, judicial notice of the full text of documents

5

referenced in a complaint is proper. No. 84 Employer–Teamster Joint Council Pension Trust

6

Fund v. Am. W. Holding Corp., 320 F.3d 920, 925 (9th Cir. 2003). Rule 201 of the Federal

7

Rules of Evidence permits a court to take judicial notice of adjudicative facts that are “not

8

subject to reasonable dispute” because they are “generally known” or can be “accurately

9

and readily determined from sources whose accuracy cannot reasonably be questioned.”
Accordingly, documents referenced in plaintiffs’ complaint and the public land records in

11
For the Northern District of California

United States District Court

10

support of Well Fargo’s motion to dismiss are the proper subjects of judicial notice and will be

12

considered in the disposition of this motion.

13

1.

14

Wells Fargo contends that plaintiffs’ allegations should be dismissed as moot because

MOOTNESS?

15

the May 2016 notice of default was rescinded. But another notice of default occurred in

16

November 2016 and that one remains alive and well, so plaintiffs can easily replead to fix this

17

problem (although First American should fall away from any amended complaint since its only

18

role came with the now-rescinded notice of default).

19

2.

20

Wells Fargo’s next argument is rejected, namely the argument that all claims are barred

JUDICIAL ESTOPPEL?

21

by the doctrine of judicial estoppel because plaintiffs did not list them years ago as assets in their

22

bankruptcy estate. The Court finds it unreasonable to assume that plaintiffs should have been

23

aware of their 2016 claims at the time of their 2012 bankruptcy lists. Wells Fargo did not record

24

the notice of default until 2016. On this record, the Court will not apply judicial estoppel to bar

25

plaintiffs’ claims.

26

3.

27

The bank’s next argument, however, fares better. Standing is an essential and

28

STANDING?

unchanging part of the case-or-controversy requirement of Article III of the United States
4

1

Constitution. There are three essential elements of standing. First, the plaintiff must have

2

suffered an “injury in fact” — an invasion of a legally protected interest which is (a) “concrete

3

and particularized,” and (b) “actual or imminent,” not “conjectural” or “hypothetical.” Second,

4

there must be a causal connection between the injury and the conduct complained of — the

5

injury has to be “fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e]

6

result [of] the independent action of some third party not before the court.” Third, it must be

7

“likely,” as opposed to merely “speculative,” that the injury will be “redressed by a favorable

8

decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992).

9

Wells Fargo contends that plaintiffs lack standing to challenge Wells Fargo’s right to
foreclose because the foreclosure has not yet happened and, in any case, the defects alleged

11
For the Northern District of California

United States District Court

10

render the assignment “voidable” rather than “void” (a necessary element of a judicial challenge

12

to pre-foreclosure claims). This order addresses each issue in turn.

13

A.

14

Pre-Foreclosure Challenge.

In Yvanova v. New Century Mortgage Corporation, 62 Cal. 4th 919, 943 (2016), the

15

California Supreme Court held that “a home loan borrower has standing to claim a nonjudicial

16

foreclosure was wrongful because an assignment by which the foreclosing party purportedly

17

took a beneficial interest in the deed of trust was not merely voidable but void, depriving the

18

foreclosing party of any legitimate authority to order a trustee’s sale.” Yvanova expressly left

19

open the question of whether a borrower has standing in the pre-foreclosure context, as in our

20

case.

21

After Yvanova, the California Court of Appeal decided Saterbak v. JPMorgan Chase

22

Bank, N.A., 245 Cal. App. 4th 808 (2016), and declined to extend Yvanova to pre-foreclosure

23

challenges. In Saterbak, the appellate court held that the borrower lacked standing to

24

preemptively challenge the assignment of the underlying deed of trust because the borrower

25

brought suit before the sale occurred and because the basis of her challenge was not a void but

26

rather a voidable assignment. Id. at 818. The court concluded that allowing the plaintiff to

27

challenge the foreclosure under these circumstances “would result in the impermissible

28

interjection of the courts into a nonjudicial scheme enacted by the California Legislature.” Id. at
5

4183750, at *1 (Cal. App. Aug. 8, 2016), also held that Yvanova authorized standing only for

3

wrongful foreclosure damage claims and not for actions seeking to prevent foreclosure. With the

4

exception of four decisions, every decision by our court of appeals and district courts in our

5

circuit has declined to extend Yvanova to pre-foreclosure challenges, thereby adopting Saterbak

6

and its progeny. E.g., Dagres v. Countrywide Bank, N.A., No. 14-56799,

7

WL 371972, at *1 (9th Cir. Jan. 26, 2017); Bryant v. J.P. Morgan Chase Bank, N.A., No. 14-

8

55299,

9

Trust, N.A., No. 16-cv-00421-MMC, 2017 WL 396143, at *3 (N.D. Cal. Jan. 30, 2017) (Judge

10

Maxine Chesney); Kaurloto v. U.S. Bank, No. 16-cv-06652-JFW-GJSx, 2016 WL 6808117, at

11
For the Northern District of California

814. In line with Saterbak, the appellate court in Keshtgar v. U.S. Bank, N.A., 2016 WL

2

United States District Court

1

*4 (C.D. Cal. Nov. 17, 2016) (Judge John Walter); Karunaratne v. US Bank National

12

Association, Case No.: 16-cv-843-JLS-KSC, 2016 WL 6698940, at *4 (S.D. Cal. Nov. 15, 2016)

13

(Judge Janis Sammartino); Watson v. Bank of America, N. 16cv513-GPC(MDD), 2016 WL

14

6581846, at *17 (S.D. Cal. Nov. 7, 2016) (Judge Gonzalo Curiel); Tobin v. Nationstar Mortgage,

15

Inc., Case No. 2:16-cv-00836-CAS(ASx), 2016 WL 1948786, at *7 (C.D. Cal. May 2, 2016)

16

(Judge Christina Snyder.)

F. Appx

F. Appx

, 2017

, 2016 WL 7407271, at *1 (9th Cir. Dec. 22, 2016); Huweih v. US Bank

17

The exceptional decisions are Hinrichsen v. Quality Loan Service Corporation,

18

No. 16cv0690 DMS, 2016 WL 4542753, at *3 (S.D. Cal. Aug. 31, 2016) (Judge Dana Sabraw);

19

Reed v. Wilmington Trust, N.A., No. 16cv19330 JSW, 2016 WL 3124611, at *4 (N.D. Cal.

20

June 3, 2016) (Judge Jeffrey White); Powell v. Wells Fargo Home Mort., No. 14-cv-04248-MEJ,

21

2016 WL 1718189, at *8 (N.D. Cal. Apr. 29, 2016) (Magistrate Judge Maria-Elena James);

22

Lundy v. Selene Finance, L.P., No. 15-cv-05676-JST, 2016 WL 1059423, at *13 (N.D. Cal.

23

Mar. 17, 2016) (Judge Jon Tigar).

24
25
26
27
28

In Lundy, which was decided one day prior to Saterbak, Judge Jon Tigar applied
Yvanova’s reasoning to the pre-foreclosure context. Judge Tigar explained that:
The prejudice in the post-foreclosure context is, of course, more
obvious than in pre-foreclosure, since a plaintiff has suffered the
definable injury of the loss of her property. But it is clear that
Yvanova’s prejudice analysis does not depend on the existence of a
completed foreclosure sale — rather, it focuses more broadly on
the unfairness of requiring a plaintiff to be subjected to foreclosure
6

1

proceedings by an entity that has no right to initiate those
proceedings. For this reason, the Court concludes that Yvanova’s
reasoning applies just as strongly to pre-foreclosure plaintiffs.

2
3

2016 WL 10559423 at *10–13.
4
In order not to disturb California’s comprehensive scheme for nonjudicial foreclosure,
5
Judge Tigar concluded that “if the California Supreme Court decides to adopt a bar on pre6
foreclosure challenges it will limit that bar only to claims that lack any ‘specific factual basis.’”
7
Ibid. Notwithstanding Saterbak, three district court decisions were persuaded by Judge Tigar’s
8
reasoning.
9
Although the prevailing trend of decisional law (and two decisions by the California
10

For the Northern District of California

United States District Court

Court of Appeal on point) suggests that our plaintiffs cannot pursue a pre-foreclosure suit, this
11

order declines to reach that issue. Plaintiffs’ claims fail for a different reason, as now discussed.*

12
B.

Void Versus Voidable.

13
Plaintiffs fail to allege a defect which would render the assignment void, rather than
14
voidable as required for standing under Yvanova. Their entire theory rests on some unspecified
15
defect in the recording of the April 2011 assignment of the deed of trust to transfer and convey
16
the beneficial interest in the subject property to HSBC Bank. Plaintiffs allege that Wells Fargo,
17
as servicing agent for HSBC Bank, cannot foreclose because Wells Fargo “unlawfully recorded”
18
the April 2011 assignment of the deed of trust to HSBC Bank and that therefore the deed was not
19
properly assigned to the operator of the pooled mortgage funds, making the deed a “legal nullity”
20
(Compl. ¶¶ 14, 23, 32).
21
The question therefore becomes whether HSBC Bank, despite improper recording,
22
remains the valid holder of the deed of trust, and therefore, Wells Fargo, as the servicing agent,
23
24
25
26
27
28

* Variations of this issue have been brought before this Court in three instances: In Avila v. Wells
Fargo, N.A., No. C 16-05904, 2016 WL 7425925 (N.D. Cal. Dec. 23, 2016), this Court granted defendant’s
motion to dismiss because plaintiff failed to allege facts rendering the underlying assignment void, rather than
voidable, and further because no trustee’s sale had yet occurred; in Burke v. JPMorgan Chase Bank, N.A.,
No. C 13-04249 WHA, 2016 WL 4916926 (N.D. Cal. Sept. 15, 2016), this Court granted a summary judgment
motion in favor of defendant on plaintiffs’ wrongful disclosure claim because plaintiffs failed to allege enough
evidence rendering the underlying assignment void; and in Bonner v. Fay Servicing, LLC, No. C 16-01363
WHA, 2016 WL 3971297 (N.D. Cal. July 26, 2016) this Court converted a motion to dismiss to a motion for
summary judgment in favor of defendant on the issue that the challenged assignment was not void.

7

1

has the right to foreclose on the underlying property. A deed of trust need not be recorded to

2

perfect an assignee’s interest, but rather will operate as constructive notice of the assignee’s

3

interest from the time of recordation. Cal. Civ. Code Section 2934.

4

A mere mistake in recording is fixable and hardly voids an assignment. Plaintiffs’ entire

5

theory fails because the mistake rated no where close to void. In fact, the mistake went wholly

6

unidentified in the complaint. For all the complaint reveals, it was a mere typo. A void contract

7

has no legal entity for any purpose and neither action nor inaction of a party to it can validate it,

8

whereas a voidable transaction may be declared void but is not void in itself. Yvanova, 62 Cal.

9

4th 919 at 930. “When an assignment is merely voidable, the power to ratify or avoid the
transaction lies solely with the parties to the assignment” and consequently a plaintiff who sets

11
For the Northern District of California

United States District Court

10

forth a claim on defects within the assignment that render it voidable is attempting to “assert an

12

interest belonging solely to the parties to the assignment rather than to herself.” Id. at 936.

13

The kind of technicality alleged here is not sufficient to justify an exemption from the

14

otherwise applicable bar on judicial intervention into the nonjudicial foreclosure process.

15

Because the challenged assignment does not change plaintiffs’ obligations under the note,

16

plaintiffs fail to allege facts to show they have suffered an “injury in fact,” which is concrete and

17

particularized. Plaintiffs, therefore, lack standing to challenge Wells Fargo’s right to foreclose.

18

CONCLUSION

19

For the foregoing reasons, the motion to dismiss is GRANTED with leave to amend.

20

Plaintiffs’ amended complaint is due MARCH 2 AT NOON. Plaintiffs must plead their best case.

21

Further leave to amend will not be granted. Any subsequent motion to dismiss has to be filed by

22

MARCH 16 AT NOON.

23
IT IS SO ORDERED.
24
25
26

Dated: February 8, 2017.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

27
28
8