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