Gilmore v. Wells Fargo Bank, N.A.

Filing 44

ORDER GRANTING 12 PRELIMINARY INJUNCTION. Signed by Judge Claudia Wilken on 7/29/2014. (ndr, COURT STAFF) (Filed on 7/29/2014)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 KEVIN E. GILMORE, 5 6 7 8 Plaintiff, United States District Court For the Northern District of California ORDER GRANTING PRELIMINARY INJUNCTION v. WELLS FARGO BANK N.A., a national bank; NDEX WEST LLC, a Delaware limited liability company; 9 10 No. C 14-2389 CW (Docket Nos. 12, 17) Defendants. ________________________________/ 11 12 This is a mortgage foreclosure case in which Plaintiff Kevin 13 E. Gilmore claims that Defendants Wells Fargo Bank, N.A. and NDEX 14 West LLC have engaged in “dual tracking” in violation of 15 California’s Homeowner Bill of Rights (HBOR). 16 On June 5, 2014, the Court granted Gilmore’s application for a temporary 17 restraining order and ordered Defendants to show cause why a 18 19 preliminary injunction should not issue. Wells Fargo responded to 20 the OSC and opposed the issuance of a preliminary injunction. 21 June 18, 2014, the Court held a hearing. 22 granted a preliminary injunction. 23 explains its reasoning in this written order. 24 On On that day, the Court See Docket No. 23. The Court BACKGROUND 25 Gilmore inherited from his grandfather the property at issue, 26 located in Berkeley, California, and has lived there since he was 27 28 a child. Gilmore Decl. ¶¶ 2-4. On June 21, 2007, he took out a 1 loan secured by a promissory note in the principal sum of $375,000 2 to World Savings Bank, FSB. 3 mergers, the servicing of his loan was transferred to Wachovia 4 Bank and then to Wells Fargo. 5 several times to provide proof of hazard insurance on the 6 Id. ¶ 2. Through a series of Id. ¶ 7. Wells Fargo asked Gilmore property, but because of the several transfers of his loan, 7 Gilmore did not know where he should send proof. Id. ¶ 8. As a 8 9 result, Gilmore’s loan servicer automatically placed insurance on United States District Court For the Northern District of California 10 the property and required him to pay, even though Gilmore had his 11 own coverage. 12 13 14 See id. ¶ 9. Due in part to the financial burdens of the wrongfully placed insurance, as well as his other financial obligations, in 2010 Gilmore became delinquent on his loan. Id. ¶ 10; see also Thomas 15 Decl. ¶ 6. From 2011 to 2013, he submitted a number of 16 applications seeking loan modifications. Gilmore Decl. ¶ 12; 17 18 Thomas Decl. ¶ 6, Exs. A-I. Each one was denied, almost always 19 due to insufficient documents. 20 Wells Fargo recorded and served a Notice of Default. 21 Decl. ¶ 15. 22 rejected because he had excessive financial obligations. 23 Id. On or about March 21, 2012, Gilmore Around June 2013, Gilmore’s loan modification was Id. ¶ 16. 24 In early 2014, Gilmore experienced a material change in his 25 26 financial circumstances -- his income increased and his financial 27 obligations decreased by about $1,000 a month. 28 March 12, 2014, he attended a home preservation workshop where he 2 Id. ¶ 17. On 1 submitted a loan modification application to a particular Wells 2 Fargo representative and was told his application was complete. 3 See Gilmore Supp. Decl. ¶¶ 35-36. 4 the Wells Fargo representative if he should add to the application 5 his live-in girlfriend’s contribution, but the representative 6 Gilmore asserts that he asked advised against it, so Gilmore submitted the application based 7 only on his own income of $5,400 a month. Id. ¶ 28. Wells Fargo 8 9 acknowledges receipt of the loan modification application and United States District Court For the Northern District of California 10 provides a copy of what it received. 11 Gilmore received a letter acknowledging receipt of the loan 12 modification application. 13 14 See Thomas Decl. ¶ 9, Ex. M. Gilmore Decl., Ex. A. Wells Fargo later determined the application was incomplete and required three additional documents: (1) a valid profit and 15 loss statement covering ninety days for Gilmore’s business (the 16 one submitted covered a period ending after the date of 17 18 submission; (2) a profit and loss statement for Gilmore’s live-in 19 girlfriend, the non-borrower contributor; and (3) proof of 20 occupancy and a paystub for the girlfriend. 21 Notably, the copy of Gilmore’s application provided by Wells Fargo 22 does not list Gilmore’s live-in girlfriend as a co-borrower, nor 23 does it list any of her information. Thomas Decl. ¶ 9. See Thomas Decl., Ex. M. 24 March 25, 2014, Wells Fargo called Gilmore advising him that he 25 26 was missing several documents, while at the same time notifying 27 him of the active foreclosure. See id. ¶ 9, Ex. N (call log). 28 After that, Wells Fargo representatives contacted Gilmore a few 3 On 1 more times advising him of the same, sometimes leaving him voice 2 messages if they could not reach him. 3 provide the requested documents. 4 that, on May 28, 2014, it sent Gilmore a letter denying his 5 application due to insufficient documents, but it did not provide 6 Id. Id. ¶ 10. Gilmore did not Wells Fargo alleges the letter in its papers opposing this motion. Id. ¶ 11.1 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 Gilmore received a subsequent letter from Wells Fargo in response to his request for the status of his loan. On April 21, 2014, Wells Fargo sent Gilmore a letter stating: As of the date of this letter, your mortgage loan is due for the December 15, 2010, through April 15, 2014 monthly installments. Foreclosure is active and a foreclosure sale date is currently scheduled for May 19, 2014. However, your mortgage loan is currently being reviewed for possible payment assistance, and you will want to continue working with Sarah Nuncio during the review process. 15 Gilmore Decl., Ex. B (emphasis added). Gilmore alleges he wishes 16 17 18 to obtain a loan modification so he can complete loan payments but has not been given a fair chance to do so. Gilmore Decl. ¶ 24. 19 LEGAL STANDARD 20 To obtain a preliminary injunction under Federal Rule of 21 22 Civil Procedure 65, the moving party must demonstrate “(1) a likelihood of success on the merits; (2) a significant threat of 23 1 24 25 26 27 28 This letter has since been provided in conjunction with Wells Fargo’s separate motion to dismiss the complaint. See Docket No. 30 (Request for Judicial Notice), Ex. 9. Although the Court need not consider this document because it was presented after the present motion was already submitted, the letter appears to be a form letter responding to Gilmore’s request for assistance and noting that the application has been closed due to insufficient documents. 4 1 irreparable injury; (3) that the balance of hardships favors the 2 applicant; and (4) whether any public interest favors granting an 3 injunction.” 4 2003); see also Winter v. Natural Res. Def. Council, Inc., 129 S. 5 Raich v. Ashcroft, 352 F.3d 1222, 1227 (9th Cir. Ct. 365, 374 (2008). The Ninth Circuit has recognized that an 6 injunction could issue if “serious questions going to the merits 7 8 9 were raised and the balance of hardships tips sharply in plaintiff’s favor,” so long as the plaintiff demonstrates United States District Court For the Northern District of California 10 irreparable harm and shows that the injunction is in the public 11 interest. 12 1127, 1131 (9th Cir. 2011) (citation and internal quotation marks 13 omitted). 14 Alliance for the Wild Rockies v. Cottrell, 632 F.3d Injunctive relief is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is 15 entitled to such relief.” Winter, 555 U.S. at 22. 16 DISCUSSION 17 18 19 I. Likelihood of success on the merits Gilmore alleges that Wells Fargo violated California’s HBOR. 20 The purpose of the act, which came into effect on January 1, 2013, 21 is to ensure that borrowers “have a meaningful opportunity to 22 obtain available loss mitigation options,” including “loan 23 modifications or other alternatives to foreclosure.” Cal. Civ. 24 25 26 Code § 2923.4. One of the HBOR’s provisions prohibits mortgage servicers from engaging in what is known as “dual-tracking,” or 27 the practice of continuing to pursue foreclosure of a property 28 while review of a loan modification application is still pending. 5 1 See Cal. Civ. Code § 2923.6(c).2 Accordingly, if the borrower 2 submits a loan modification application, the mortgage servicer 3 must first make a written determination that the borrower is not 4 eligible for a loan modification before recording a notice of 5 default or conducting a trustee’s sale. Id. Denial of the loan 6 modification triggers a thirty-day appeal period. Cal. Civ. Code 7 8 9 § 2923.6(d). If a loan modification is offered, and the borrower either rejects the offer or accepts the offer but breaches the United States District Court For the Northern District of California 10 loan modification agreement, then the mortgage servicer may 11 initiate foreclosure proceedings. 12 13 14 Id. subsection (c). Wells Fargo disputes whether the HBOR provision applies to this case. A settlement was reached in a case entitled, United States of America v. Bank of America Corp., Case No. 1:12-cv-00361 15 RMC, called the National Mortgage Settlement (NMS). The terms of 16 17 the NMS were memorialized in a Settlement Term Sheet, which 18 imposes a number of requirements on NMS signatories. The HBOR 19 provides a safe harbor provision insulating an NMS signatory from 20 liability so long as the signatory “is in compliance with the 21 relevant terms of the Settlement Term Sheet of that consent 22 23 24 25 26 27 28 2 The statute provides in relevant 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 . . . 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.” 6 1 2 3 judgment with respect to the borrower who brought an action pursuant to this section.” Cal. Civ. Code § 2924.12(g). Wells Fargo argues that its compliance can only be determined 4 according to the report issued by the monitor appointed to 5 administer the Consent Judgment in the District of Columbia case. 6 The Consent Judgment itself is concerned with mortgage servicing, 7 origination, and certification in general, rather than with 8 9 respect to any particular mortgage. The monitor has found Wells United States District Court For the Northern District of California 10 Fargo to be in compliance. 11 that the California statute “creates an ambiguity and reveals a 12 lack of understanding of the compliance and enforcement provisions 13 of the NMS.” 14 See RJN, Ex. 8. Wells Fargo argues Wells Fargo’s Response to OSC, 7. To the extent that the California statute is interpreted to create a different 15 standard of “compliance” that is not in the NMS, Wells Fargo 16 argues that allowing California courts to interpret the NMS would 17 18 19 20 invade the District of Columbia court’s exclusive jurisdiction for interpreting its own Consent Judgment. Wells Fargo’s argument is unpersuasive. Section 2924.12(g) 21 unequivocally and unambiguously states that the compliance 22 required for immunity from California’s HBOR statutory provisions 23 is “with respect to the borrower who brought an action pursuant to 24 this section.” It is a cardinal principle of statutory 25 26 construction “that a statute ought, upon the whole, to be so 27 construed that, if it can be prevented, no clause, sentence, or 28 word shall be superfluous, void, or insignificant.” 7 Duncan v. 1 Walker, 533 U.S. 167, 174 (2001). Wells Fargo’s reading of the 2 statute would render the phrase noted above to be superfluous. 3 The plain meaning of that phrase demonstrates that a defendant 4 must comply with the terms with respect to the borrower in 5 question, or else the borrower may sue under the HBOR.3 6 This does not invade the jurisdiction of the District of Columbia court to 7 enforce its own consent decree, monitoring signatories according 8 9 to its own provisions. Conversely, the monitor in the District of United States District Court For the Northern District of California 10 Columbia court does not govern the administration of California 11 law. 12 Settlement Term Sheet into the safe harbor provision of the HBOR 13 but did not delegate to the NMS monitor the determination of the 14 The California legislature chose to incorporate the NMS’ state’s safe harbor provision. 15 Wells Fargo has not shown that it has complied with the terms 16 of the Settlement Term Sheet with respect to the servicing of the 17 18 19 loan in question.4 Gilmore presents evidence showing that Wells Fargo failed to provide him with an online portal which, among 20 21 22 23 24 25 26 27 28 3 Although the issue has not been discussed extensively, courts in this district have applied the safe harbor provision with respect to the borrower bringing the suit. See, e.g., Penermon v. Wells Fargo Bank, N.A., __F.Supp.2d__, 2014 WL 2754596, at *7 (N.D. Cal.); Bowman v. Wells Fargo Home Mortgage, 2014 WL 1921829, at *4 (N.D. Cal.). 4 Although Wells Fargo asserted at the hearing that Gilmore had the burden to prove the NMS did not apply, safe harbor under the HBOR is “an affirmative defense . . . for which Wells Fargo has the burden of proof.” Bowman, 2014 WL 1921829, at *4 (quoting Rijhwani v. Wells Fargo Home Mortgage, Inc., 2014 WL 890016, at *9 (N.D. Cal.)). 8 1 other things, would allow him to check the status of his loan 2 modification application. 3 A (Settlement Term Sheet), A-25. 4 this allegation with any valid evidence. 5 Fargo’s counsel asserted there was an online portal, but did not 6 Gilmore Decl. ¶ 22; Pivtorak Decl., Ex. Wells Fargo does not dispute At the hearing, Wells say whether the portal satisfied the conditions of the Settlement 7 Term Sheet or provide any admissible evidence to back up that 8 9 claim. June 18, 2014 Transcript, 6:18-7:22. Attorney argument is United States District Court For the Northern District of California 10 not evidence. 11 the provisions of the NMS with respect to Gilmore’s mortgage and 12 is not protected by the safe harbor provision of the HBOR. 13 14 Thus, it is likely that Wells Fargo has violated Gilmore additionally demonstrates that it is likely that Wells Fargo has engaged in dual tracking in violation of the HBOR 15 and the NMS, which would be an alternative ground for finding that 16 the HBOR’s safe harbor provision does not apply. The NMS 17 18 19 20 21 22 23 provides: If, after an eligible borrower has been referred to foreclosure, Servicer receives a complete loan modification application more than 30 days after the Post Referral to Foreclosure Solicitation letter, but more than 37 days before a foreclosure sale is scheduled, then while such loan modification application is pending, Servicer shall not proceed with the foreclosure sale. Settlement Term Sheet, A-19 ¶ 6. If the loan modification 24 requested by the borrower is denied, and more than ninety days 25 26 remain until a scheduled foreclosure date or a date when 27 foreclosure could reasonably occur, then a borrower is entitled to 28 an appeal process. Id. at ¶ 7. The servicer cannot foreclose 9 1 until the expiration of a thirty-day appeal period or, if the 2 borrower appeals, the termination of the appeal process. 3 the borrower completes a loan modification application between 4 thirty-seven to fifteen days before a foreclosure sale is 5 scheduled, then the servicer need only conduct an expedited review 6 of the application. Id. at A-19-A-20 ¶ 8. Id. If Even if the borrower 7 completes a loan modification application less than fifteen days 8 9 before a foreclosure sale is scheduled, the servicer must United States District Court For the Northern District of California 10 nevertheless notify the borrower of its determination or inability 11 to complete its review of the application. 12 Notice of a denial shall inform the borrower that he has thirty 13 days to provide evidence that the decision was in error. 14 Id. at A-20 ¶ 9. Id. at A-27 ¶ 2. 15 California’s HBOR prohibits the mortgage servicer or 16 authorized agent from recording a notice of default, recording a 17 18 notice of sale, or proceeding to foreclosure while review of a 19 complete loan modification application is pending. 20 § 2923.6(c).5 21 loan modification and has been denied, then the servicer is not 22 Cal. Civ. Code If the borrower has previously been reviewed for a required to evaluate a new application unless it includes a 23 documented change of the borrower’s financial circumstances. Id. 24 25 26 27 28 5 The provision uses the term “first lien loan modification,” which means a modification of the loan on “the most senior mortgage or deed of trust on the property,” not the first submitted application for a loan modification. See Cal. Civ. Code § 2920.5(d) (defining the term “first lien” for purposes of the article). 10 1 subsection (g). The servicer must provide the borrower with 2 written notice identifying the reasons for the denial and other 3 applicable information, which triggers a thirty-day appeal 4 process. 5 6 Id. subsections (c)-(f). Gilmore submits evidence that the loan modification application he completed at the home preservation workshop was 7 based on his income information only. His application materials, 8 9 which Wells Fargo submitted to the Court, corroborate his claim. United States District Court For the Northern District of California 10 It appears that no final rejection was ever provided to Gilmore, 11 which would likely have triggered an appeal process. 12 21, 2014 letter that Wells Fargo sent Gilmore informed him that 13 the foreclosure process was proceeding, but that review of his 14 application was ongoing. The April Because the letter does not provide a 15 clear denial of Gilmore’s application with notice of his options 16 going forward, this would appear to be a violation of the 17 18 19 provisions of both the NMS and the HBOR. Wells Fargo contends that Gilmore’s loan modification 20 application was never complete. 21 Gilmore failed to submit certain documents, Gilmore points out 22 that this deficiency was noted in error because the documents 23 While Wells Fargo alleges that identified by Wells Fargo were either unnecessary for his 24 application (the girlfriend’s documents, which the Wells Fargo 25 26 representative stated were unnecessary, and upon which Gilmore did 27 not rely), or were not communicated clearly to Gilmore. 28 although Wells Fargo alleges it called Gilmore several times to 11 Further, 1 obtain the requested documents, Gilmore points out this was a 2 departure from Wells Fargo’s typical practice over the years, 3 which was to send letters requesting additional documents. 4 e.g., Gilmore Decl., Ex. A; Thomas Decl., Ex. I. 5 that there are at least serious questions going to whether Gilmore 6 See, The result is completed his loan modification application.6 7 8 II. 9 United States District Court For the Northern District of California 10 Irreparable Harm, Balance of the Hardships, and Public Interest As noted in the TRO, the other factors weigh heavily in favor of Gilmore. The foreclosure sale currently scheduled would impose 11 immediate and irreparable injury because Gilmore would lose real 12 13 property, which is always considered unique. Sundance Land Corp. 14 v. Cmty. First Fed. Sav. & Loan Ass'n, 840 F.2d 653, 661 (9th Cir. 15 1988). 16 the property at issue is his childhood home. 17 deprived of a meaningful opportunity to be considered for 18 Gilmore’s loss would be particularly significant because He would also be available loss mitigation options, which is his right under the 19 HBOR. This situation is exactly the sort of harm that the HBOR 20 21 was intended to prevent -- borrowers unable to achieve a 22 6 23 24 25 26 27 28 Indeed, under the statutory scheme requiring a detailed denial and appeal process, it might have been in Wells Fargo’s interest to avoid providing a final rejection letter and instead allege that Gilmore’s application was “incomplete.” As Gilmore’s counsel notes, the fact that Gilmore has attempted to modify his loan numerous times without success could cut both ways. It could reflect on the difficult nature of Wells Fargo’s loan modification process and the fact that servicers are incentivized to allege that applications are incomplete in order to move forward with foreclosure. See June 18, 2014 Transcript, 8:5-17. 12 1 2 3 meaningful and clear review of their loan modification applications. See Penermon, 2014 WL 2754596, at *6. On the other hand, the potential harm to Wells Fargo is 4 unlikely to be substantial. 5 litigation that injunctive relief was wrongly issued, Wells Fargo 6 If it is revealed at the end of the could then foreclose on the property and gain from the substantial 7 value of the property. In that case, a preliminary injunction 8 9 would have only delayed foreclosure for a relatively short period United States District Court For the Northern District of California 10 of time. 11 minimize any potential harm to Wells Fargo. 12 irreparable injury to Gilmore is comparatively severe, the balance 13 of hardships weighs in Gilmore’s favor. 14 The terms of an injunction also may be tailored to Because the The last factor also weighs in favor of granting an 15 injunction. Due to the “adverse impact foreclosures have on 16 households and communities,” there is a “strong public interest in 17 18 preventing unlawful foreclosures.” Sharma v. Provident Funding 19 Associates, LP, 2010 WL 143473, at *2 (N.D. Cal.). 20 modifications and other non-foreclosure alternatives can help 21 borrowers avoid foreclosures. 22 at *6. 23 Loan See Penermon, 2014 WL 2754596, As acknowledged by the California legislature in enacting the HBOR, there is a strong public interest in offering borrowers 24 a meaningful opportunity to explore available loss mitigation 25 26 27 options. See id. (“This law was created to combat the foreclosure crisis and hold banks accountable for exacerbating it.”). 28 13 1 In sum, because Gilmore has satisfied his burden of showing 2 all the Winter factors are met, the Court preliminarily enjoins 3 Wells Fargo from foreclosing on the property. 4 III. Bond amount 5 6 Wells Fargo contends that if a preliminary injunction were to issue, a bond of $65,000 should be required. Federal Rule of 7 Civil Procedure 65(c) states that a court may issue a preliminary 8 9 injunction only if the movant gives security in the amount the United States District Court For the Northern District of California 10 court considers proper to pay the costs and damages sustained if 11 any party is found to be wrongly restrained or enjoined. 12 a court nevertheless has the discretion to waive the bond 13 requirement if there is a high probability of success that equity 14 However, compels waiving the bond, the balance of the equities 15 overwhelmingly favors the movant, it appears unlikely that the 16 defendant will suffer any harm as a result of the preliminary 17 18 injunction, or the requirement of a bond would negatively impact 19 the movant’s constitutional rights. 20 Sch. Dist., 936 F. Supp. 719, 738 (C.D. Cal. 1996). 21 22 23 Baca v. Moreno Valley Unified Wells Fargo alleges that Gilmore has not made a payment since 2010 and that he owes up to $415,100.14. Wells Fargo additionally asserts that, if it is prevented from foreclosing, it will lose 24 interest payments due on the loan, taxes and insurance premiums 25 26 paid on the property, and attorneys’ fees. Gilmore responds that 27 his property is worth at least $630,000, as determined by Wells 28 Fargo in a valuation dated March 8, 2014. 14 Pivtorak Supp. Decl., 1 2 Ex. C. Consequently, Wells Fargo should be protected fully by the value of the property. 3 In order to minimize the potential harm to Wells Fargo, the 4 Court will require a bond for the preliminary injunction to stay 5 in effect. 6 The bond shall take the form of monthly payments in the amount of Gilmore’s last mortgage payment, or $1,800, which 7 will be held in trust. See June 18, 2014 Transcript, 2:11-3:11, 8 9 14:24-15:6. As Gilmore will be paying the full amount of his United States District Court For the Northern District of California 10 mortgage every month to keep the preliminary injunction in place, 11 a payment which Wells Fargo was not receiving at the time the suit 12 was filed, Wells Fargo will not suffer undue harm. 13 14 CONCLUSION Defendant Wells Fargo, its agents, and all persons acting in 15 concert or participating with Wells Fargo, are hereby restrained 16 and enjoined from engaging in, committing, performing, or 17 18 conducting, directly or indirectly, any and all of the following 19 acts: commencing, continuing, maintaining, or conducting a 20 trustee’s sale or other foreclosure proceeding with regards to 21 Plaintiff Kevin E. Gilmore’s home located at 955 Virginia St., 22 Berkeley, CA 94710, APN #058-2124-0193. 23 This preliminary injunction is conditioned upon Gilmore 24 making monthly payments to Wells Fargo in the amount of $1,800, 25 26 payable on the twenty-third day of every month, beginning Monday, 27 June 23, 2014. The payment must be sent to Wells Fargo’s counsel 28 in this case, who must place the payment in its firm’s trust 15 1 account. If Wells Fargo believes that Gilmore has breached this 2 condition, then Wells Fargo must first ask the Court to lift the 3 injunction before taking any action related to the property. 4 IT IS SO ORDERED. 5 Dated: 7/29/2014 6 CLAUDIA WILKEN United States District Judge 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16

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