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