Opinion
H044194
10-29-2018
NIKI-ALEXANDER SHETTY, Plaintiff and Appellant, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee , etc., Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Cruz County Super. Ct. No. 16CV01883)
This case arises out of respondent Deutsche Bank National Trust Company's ("Deutsche Bank") nonjudicial foreclosure of property located at 121 Klassen Lane in Watsonville, California. Appellant Niki-Alexander Shetty acquired title to the property after the foreclosure process had begun; however, he is not a party to the loan that is the basis for the foreclosure.
In an effort to obtain clear title to the property, Shetty sued Deutsche Bank for cancellation and expungement of a void written instrument, to quiet title, and to obtain declaratory relief. Shetty's complaint asserts that Deutsche Bank is not authorized to foreclose on the property because it received an invalid assignment of the deed of trust on the property in 2009.
The trial court granted Deutsche Bank's demurrer to Shetty's complaint on the ground that Shetty lacks standing to assert claims challenging the foreclosure. Shetty appeals the judgment entered in favor of Deutsche Bank. We agree with the trial court that Shetty lacks standing and affirm the judgment.
Shetty was designated a vexatious litigant pursuant to Code of Civil Procedure section 391, subdivision (b), by the Los Angeles Superior Court on September 12, 2016 in case number BC615847. (<http://www.courts.ca.gov/documents/vexlit.pdf> [as of Oct. 24, 2018], archived at <https://perma.cc/5CBT-HE3Y>.) Shetty is represented by counsel in this appeal.
I. STATEMENT OF THE FACTS AND CASE
On March 3, 2007, Ramon Fuentes and Letisia Macias Fuentes, as Trustees of the Ramon Fuentes and Letisia Macias Fuentes Trust dated 2-15-06, ("Borrowers") refinanced their property located at 121 Klassen Lane in Watsonville, California ("Property"). Borrowers obtained a loan for $676,000.00 from IndyMac Bank, F.S.B ("IndyMac"). IndyMac secured the loan with a Deed of Trust recorded against Property on March 23, 2007.
The Deed of Trust was assigned two times in 2009. The first was on May 6, 2009, when Mortgage Electronic Registration Systems, Inc., assigned the loan to IndyMac. The Assignment of Deed of Trust was recorded on October 14, 2009. The loan was assigned a second time on June 22, 2009, from IndyMac to Deutsche Bank. That Assignment of Deed of Trust was recorded on December 19, 2012.
Borrowers failed to make monthly payments on the mortgage and on June 30, 2015, a Notice of Default in the amount of $289,277.31 was recorded against Property. On March 16, 2016, Deutsche Bank recorded a Notice of Trustee's Sale. After Deutsche Bank recorded its Notice of Default and Notice of Trustee's Sale, but before the trustee's sale could occur, Borrowers executed a grant deed conveying title to Property to Shetty. The grant deed was recorded on May 29, 2016, and states that the value of Property "is $100.00 or less." The grant deed also states that it "assigns any and all claims and causes of action known and unknown arising out of and related to the property herein and respective mortgages to [] Shetty."
On July 25, 2016, Shetty filed a complaint against Deutsche Bank seeking cancellation and expungement of a void written instrument, to quiet title, and to obtain declaratory relief. Deutsche Bank demurred to the complaint on the ground that Shetty lacks standing to assert his claims because he is not a party to the loan.
On November 8, 2016, the trial court sustained Deutsche Bank's demurrer without leave to amend stating: "[I]t's the Court's view that [Shetty] does not have standing to bring a preemptive suit to challenge a nonjudicial foreclosure." On November 22, 2016, the trial court entered judgment in favor of Deutsche Bank. Shetty filed a timely notice of appeal from the judgment.
II. DISCUSSION
A. Standard of Review
We perform an independent review of a ruling on a demurrer and decide de novo whether the challenged pleading states facts sufficient to constitute a cause of action. (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42; McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank).)
On appeal, we will affirm a "trial court's decision to sustain the demurrer [if it] was correct on any theory. [Citation.]" (Kennedy v. Baxter Healthcare Corp. (1996) 43 Cal.App.4th 799, 808, fn. omitted.) Thus, "we do not review the validity of the trial court's reasoning but only the propriety of the ruling itself. [Citations.]" (Orange Unified School Dist. v. Rancho Santiago Community College Dist. (1997) 54 Cal.App.4th 750, 757.)
We review the denial of leave to amend after the sustaining of a demurrer under an abuse of discretion standard. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) When a demurrer is sustained without leave to amend, the reviewing court must determine whether there is a reasonable probability that the complaint could have been amended to cure the defect; if so, it will conclude that the trial court abused its discretion by denying the plaintiff leave to amend. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 39; Williams v. Housing Authority of Los Angeles (2004) 121 Cal.App.4th 708, 719.) " '[W]here the nature of the plaintiff's claim is clear, and under substantive law no liability exists, a court should deny leave to amend because no amendment could change the result.' " (Buchanan v. Maxfield Enterprises, Inc. (2005) 130 Cal.App.4th 418, 421.) The plaintiff bears the burden of establishing that it could have amended the complaint to cure the defect. (Campbell v. Regents of University of California (2005) 35 Cal.4th 311, 320.)
B. Shetty's Claims
The gravamen of Shetty's complaint is that Deutsche Bank did not have the authority to pursue nonjudicial foreclosure of Property, because the two transfers of the Deed of Trust that occurred in 2009 were invalid.
Shetty asserts that he has standing to pursue his claims against Deutsche Bank although he is not the borrower of the loan secured by Property for a number of reasons. First, Shetty argues that he has standing because Deutsche Bank does not have the authority to foreclose on Property. This argument is based on Shetty's assertion that the assignments of the Deed of Trust to Property were void, rendering Deutsche Bank without authority to initiate a foreclosure action. Second, Shetty argues that because he holds title to Property, he has standing under Civil Code section 954 as an assignee of Borrowers' claims against Deutsche Bank. Third, Shetty asserts that Article III of the United States Constitution provides standing because a decision in his favor will redress his injury. Finally, Shetty argues that he has standing based on Code of Civil Procedure section 367, and Civil Code section 1717.
C. Whether Deutsche Bank is Authorized to Pursue Foreclosure
Shetty asserts that he has standing to bring his action to preempt the nonjudicial foreclosure because Deutsche Bank did not lawfully initiate foreclosure on Property as two of the assignments of the Deed of Trust to Deutsche Bank were executed by individuals who lacked the authority to do so. In support of his claims, Shetty cites Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919 (Yvanova) in his complaint. In Yvanova, the California Supreme Court considered the following limited issue arising from the 2008 collapse of the housing market and the subsequent fallout of defaults and foreclosures: " 'In an action for wrongful foreclosure on a deed of trust securing a home loan, does the borrower have standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void?' " (Id. at p. 926.)
Shetty asserts that he is not attempting to preempt the nonjudicial foreclosure, but clearly he is doing precisely that based on the timing and circumstances of the execution of the grant deed and the nature of the claims raised in his complaint. These actions can only be interpreted as an effort to stop the foreclosure process and award Property to Shetty himself.
Yvanova was a home loan borrower whose amended complaint for wrongful foreclosure contended that the assignment of the loan to subsequent lenders was void for two reasons. First, Yvanova alleged that New Century Mortgage Company, who was the original lender and beneficiary of the trust deed securing the loan, had transferred all of its assets, including the note and deed of trust, to a bankruptcy liquidation trust, purportedly rendering any subsequent transfer void ab initio. Second, Yvanova asserted that the Morgan Stanley securitized trust to which the deed of trust on the borrower's property was assigned had closed before the assignment and could not lawfully receive additional assignments. (Yvanova, supra, 62 Cal.4th at p. 925.)
The assigned lender's demurrer was granted without leave to amend. The trial court concluded that the borrower had no standing to pursue the action, finding that Yvanova was an unrelated third party to the assignment of the deed of trust with no ability to enforce the terms of the agreements alleged to be defective. This ruling followed the generally recognized principle that a borrower cannot raise an objection to the assignment of a note and deed of trust as a promissory note is a negotiable instrument the lender may sell without notice. (Creative Ventures LLC v. Jim Ward & Associates (2011) 195 Cal.App.4th 1430, 1445-1446.)
The Supreme Court reversed, drawing a distinction between a challenge by a borrower to a foreclosure based on a voidable assignment of a note and deed of trust to a subsequent lender and a challenge to an assignment that is void. An assignment may be determined to be void if the lender to whom the deed of trust is assigned does not have the authority through the foreclosure process to enforce the debt that the mortgage secures. (Yvanova, supra, 62 Cal.4th at p. 929.) A void assignment deprives the recipient of the note and deed of trust of authority as a matter of law. ". . .[I]f a purported assignment necessary to the chain by which the foreclosing entity claims that power is absolutely void, meaning of no legal force or effect whatsoever [citations omitted], the foreclosing entity has acted without legal authority by pursuing a trustee's sale, and such an unauthorized sale constitutes a wrongful foreclosure. [citations omitted]" (Id. at p. 935.)
The court reasoned that by challenging a purportedly void transfer of the deed of trust, a borrower in Yvanova's position was asserting her own interest ". . . in limiting foreclosure on her property to those with legal authority to order a foreclosure sale." (Yvanova, supra, 62 Cal.4th at pp. 936-937.) The court therefore held that "a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee's sale." (Id. at pp. 942-943.)
Contrary to Shetty's assertion, Yvanova does not support his claim to standing for several reasons. In Yvanova the court considered the narrow question of whether, after a foreclosure sale has occurred, a borrower may sue for wrongful foreclosure based on allegations that a purported assignment of the note and deed of trust to the foreclosing party had defects rendering the assignment void. (Yvanova, supra, 62 Cal.4th at p. 923.) "The question is whether and when a wrongful foreclosure plaintiff may challenge the authority of one who claims it by assignment." (Id. at p. 929.) Answering the question of whether a foreclosure plaintiff may assert a challenge, the court concluded that a borrower has standing to challenge a purportedly void assignment of the note and deed of trust. (Id. at pp. 942-943.) Unlike the plaintiff in Yvanova, Shetty is not the borrower in this action, is not in privity with the lender, and has not assumed the obligations of the home loan leading to the foreclosure.
As to when a challenge may be brought, in Yvanova the borrower sought relief through a wrongful foreclosure action, not by an action to prevent the foreclosure as Shetty filed here. The Yvanova court underscored the narrow scope of its holding, stating: "We hold only that a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment. We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party's right to proceed." (Yvanova, supra, 62 Cal.4th at p. 924; italics added.)
The limitations of the Yvanova holding were recognized in Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808 (Saterbak), which is similar to the present case. In Saterbak, the borrower sought to cancel the assignment of the deed of trust to her home after a notice of default and notice of trustee's sale had been recorded but before a sale occurred. The Court of Appeal stated: "California courts do not allow such preemptive suits because they 'would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature.' [Citations.]" (Id. at pp. 814-815.) As Saterbak observed, Yvanova did not alter standing for pre-foreclosure cases because Yvanova's holding that a borrower has standing to sue for wrongful foreclosure based on an allegedly void assignment was "expressly limited to the post-foreclosure context." (Saterbak, supra, 245 Cal.App.4th at p. 815.)
Saterbak's rationale is consistent with the statutory scheme for nonjudicial foreclosure sales in California. Civil Code sections 2924 through 2924k "provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust." (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830.) "These provisions cover every aspect of exercise of the power of sale contained in a deed of trust." (I.E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 285.) "Because of the exhaustive nature of this scheme, California appellate courts have refused to read any additional requirements into the non-judicial foreclosure statute." (Lane v. Vitek Real Estate Industries Group (E.D.Cal. 2010) 713 F.Supp.2d 1092, 1098.)
"[N]owhere does [Civil Code section 2924, et seq.] provide for a judicial action to determine whether the person initiating the foreclosure process is indeed authorized, and we see no ground for implying such an action. [Citation]." (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1155 (Gomes).) Indeed, "[t]he recognition of the right to bring a lawsuit to determine a nominee's authorization to proceed with foreclosure on behalf of the noteholder would fundamentally undermine the non-judicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures." (Ibid.)
Shetty's action in this case seeks to preempt a nonjudicial foreclosure and to avoid the trustee's sale of Property based on his claim that Deutsche Bank does not have the authority to foreclose on his property. Based on the holding of Saterbak, as well as the rationale in Gomes, we find that Shetty lacks standing to assert his claims. (Saterbak, supra, 245 Cal.App.4th 808; Gomes, supra, 192 Cal.App.4th at p. 1155.)
We need not determine whether, under Yvanova, supra, 62 Cal.4th 919, Shetty has successfully established that the transfer of the Deed of Trust was void, as opposed to voidable. Although Yvanova requires a void transfer to confer standing, Saterbak, supra, 245 Cal.App.4th 808 prohibits a preforeclosure challenge to the assignment of a deed of trust regardless of whether the alleged assignment was void or voidable. Accordingly, we do not reach that question in this case.
D. Shetty is Not a Party to the Loan
Deutsche Bank instituted a foreclosure of Property because Borrowers defaulted on their mortgage. While Shetty received a grant deed from Borrowers, he did not assume Borrowers' debt obligations of the mortgage when he took title to Property. Deutsche Bank asserts that because Shetty was not a party to the loan transaction, he lacks standing to assert claims arising out of the loan transaction itself, or the creditor's action to enforce the loan.
In support of its argument that Shetty must be a party to the loan in order to have standing to assert his claims, Deutsche Bank cites a number of federal cases. (See, e.g., Brockington v. J.P. Morgan Chase Bank, N.A. (N.D. Cal. July 1, 2009, No. C-08-05795 RMW) 2009 US Dist. LEXIS 56622 at *6-7, 2009 WL 1916690, at *2-3 [holding plaintiff who was not a party to the loan transaction had no standing as an alleged "equitable owner" of the property to challenge defendant's conduct in connection with extending mortgage loan to plaintiff's daughter, or to assert claim for unlawful concealment of facts in such transaction.]; See, also, Edwards v. Wells Fargo Bank, N.A., (C.D. Cal. June 13, 2013, No. CV 13-0201-ABC (PLA)) 2013 U.S. Dist. LEXIS 96517, *22, 2013 WL 3467215, *7 [holding that a plaintiff with no interest or obligation under the loan at issue has no standing to pursue an action related to the loan.]; Seiler v. JP Morgan Chase Bank N.A., (D.Nev. Jan. 23, 2012, No. 2:10-CV-01405-KJD-RJJ) 2012 U.S. Dist. LEXIS 7094, *14, 2012 WL 194428, *5 [holding that a plaintiff who is not a party to a loan cannot establish standing to challenge a foreclosure].)
Although we may not rely on unpublished California cases, the California Rules of Court do not prohibit citation to unpublished federal cases, which may properly be cited as persuasive authority. (Cal. Rules of Court, rule 8.1115; In re Farm Raised Salmon Cases (2008) 42 Cal.4th 1077, 1096, fn. 18; Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 251, fn. 6.)
While Deutsche Bank may well be correct in its analysis, we need not reach the question of whether the holder of a grant deed and thus title to a property, who is neither the borrower nor a party to a loan transaction secured by a property, has standing to challenge an allegedly void assignment of the Deed of Trust. We hold that regardless of whether Shetty was a party to the loan in this case, he lacks standing to assert a preemptive action to halt a nonjudicial foreclosure based on his claim that Deutsche Bank did not have the authority to foreclose on Property. (Saterbak, supra, 245 Cal.App.4th 808.)
Shetty argues that he has standing as an assignee of the rights of Borrowers under Civil Code section 954, which provides: "A thing in action, arising out of a violation of a right of property, or out of an obligation, may be transferred by the owner."
Assignability under Civil Code section 954 is limited to "a thing of action," a term defined in Civil Code section 953 as "a right to recover money or other personal property by a judicial proceeding." (Italics added.) By definition, "[t]he words 'personal property' include money, goods, chattels, things in action, and evidences of debt," and do not include "lands, tenements, and hereditaments," which instead are "real property." (Civ. Code § 14, subd. (a)(2) & (3).)
Assuming for the sake of argument that Shetty was assigned the rights of Borrowers in this case, he was not assigned a thing in action under Civil Code section 954. Shetty is seeking a preemptive action to stop a nonjudicial foreclosure; he is not seeking "to recover money or other personal property by a judicial proceeding." (Civ. Code § 943.) Notably, even Borrowers would lack standing to assert any preemptive action to halt the nonjudicial foreclosure in this case. (Saterbak, supra, 245 Cal.App.4th 808.)
Moreover, Shetty does not cite any authority for the proposition that Civil Code section 954 permits a debtor to assign a cause of action to challenge the validity of a deed of trust or promissory note. The cases Shetty does cite are not applicable to the present case. (See, e.g., A. L. Dibble v. San Juaquin Light & Power Corp. (1920) 47 Cal.App. 112 [court considered whether an insurer's claims arising out of subrogation was assignable to a plaintiff]; J.J. Stapp v. Madera Canal and Irrigation Co. (1917) 34 Cal.App. 41 [property owner can assign right to claim for property damage to tenants]; Andrew Wikstrom v. Yolo Fliers Club (1929) 206 Cal. 461 [claim of damages from fraud in the sale of property can be assigned from a deceased plaintiff to an executer].)
F. Article III of the United States Constitution
Shetty claims that he has standing under Article III of the United States Constitution because a decision in his favor will redress his injury. However, Article III of the United States Constitution sets forth the case or controversy requirement for the jurisdiction of the federal courts. It is inapplicable to the state court case before us.
G. Civil Code section 1717 and Code of Civil Procedure section 367
Shetty asserts that he has standing under Civil Code section 1717, because "an action based upon a deed of trust is a contract action within Civil Code section 1717." Civil Code section 1717 relates to an award of attorney's fees and costs to the prevailing party in a breach of contract action where the contract has a provision for the award of attorney's fees. (Civ. Code, § 1717, subd. (a).) Here, Shetty does not seek an award of attorney's fees in connection with a breach of contract action. Therefore, Civil Code section 1717 does not provide Shetty standing in this case.
Shetty also asserts that he has standing under Code of Civil Procedure section 367, which provides: "[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute." " 'A real party in interest is one who has "an actual and substantial interest in the subject matter of the action and who would be benefited or injured by the judgment in the action. [Citation]" [Citation]' " (Chao Fu, Inc. v. Chen (2012) 206 Cal.App.4th 48, 57.)
The purpose of Code of Civil Procedure section 367 requiring that every action be prosecuted in the name of the real party in interest is to "protect a defendant from harassment [from] other claimants on the same demand. [Citation]" (The Rossdale Group, LLC v. Walton (2017) 12 Cal.App.5th 936, 944.) Contrary to Shetty's assertion, the statute does not confer standing to pursue a claim.
H. Conclusion
The trial court properly sustained Deutsche Bank's demurrer to Shetty's complaint without leave to amend. Shetty does not have standing to assert claims to preempt a nonjudicial foreclosure based on Deutsche Bank's alleged lack of authority to foreclose on Property. (Saterbak, supra, 245 Cal.App.4th 808.) In addition, Shetty cannot establish standing under Article III of the United States Constitution, Civil Code sections 954 and 1717, or Code of Civil Procedure section 367.
Because we find that Shetty lacks standing to assert his claims, we do not address whether the complaint alleges facts sufficient to state a cause of action. (Blank, supra, 39 Cal.3d at p. 318.) --------
III. DISPOSITION
The judgment is affirmed.
/s/_________
Greenwood, P.J. WE CONCUR: /s/_________
Premo, J. /s/_________
Grover, J.