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Hernandez v. Onewest Bank, FSB

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION EIGHT
Jan 31, 2012
No. B224205 (Cal. Ct. App. Jan. 31, 2012)

Opinion

B224205

01-31-2012

ARTEMIO HERNANDEZ et al., Plaintiffs and Appellants, v. ONEWEST BANK, FSB, Defendant and Respondent.

Law Offices of Jina A. Nam & Associates and Jina A. Nam for Plaintiffs and Appellants. Allen Matkins Leck Gamble Mallory & Natsis, David R. Zaro, Joshua A. del Castillo and Kenyon D. Harbison for Defendant and Respondent.


NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

(Los Angeles County Super. Ct. No. BC415507)

APPEAL from the judgment of the Superior Court of Los Angeles County. Susan Bryant-Deason, Judge. Affirmed.

Law Offices of Jina A. Nam & Associates and Jina A. Nam for Plaintiffs and Appellants.

Allen Matkins Leck Gamble Mallory & Natsis, David R. Zaro, Joshua A. del Castillo and Kenyon D. Harbison for Defendant and Respondent.

Plaintiffs Artemio and Columba Hernandez obtained a real estate purchase loan secured by a deed of trust against the property. The original lender, Cornerstone Lending, assigned the deed of trust to Indymac Federal Bank, FSB (Indymac). Indymac then assigned its interest in the deed of trust to defendant OneWest Bank, FSB (OneWest). NDEx West, L.L.C. (NDEx), was substituted as the new trustee. Plaintiffs defaulted in payment of the loan, and the new trustee initiated foreclosure proceedings and executed a foreclosure sale of plaintiffs' residence. Plaintiffs' first amended complaint states 19 causes of action, based principally on the theory that "defendants" engaged in predatory lending practices. OneWest generally demurred to each cause of action in the first amended complaint, and no opposition was filed by plaintiffs. The trial court sustained the demurrer without leave to amend. Because we find the first amended complaint did not state facts showing any wrongful conduct by OneWest or any entitlement to relief from the completed foreclosure, and plaintiffs have failed to demonstrate that the defects could be cured by amendment, we affirm the judgment dismissing the complaint.

The first amended complaint stated claims for: declaratory relief; injunctive relief; determination of nature, extent, and validity of lien; contractual breach of good faith and fair dealing; violations of the Truth in Lending Act (15 U.S.C. § 1601 et seq.); violations of the Real Estate Settlement Procedures Act (RESPA); violation of Civil Code sections 1918 to 1921, 1916.7, subdivisions (a)(8), b(2) and (b)(4)(B); violation of Business and Professions Code section 10241.3; violation of Civil Code section 2932.5; rescission; fraud; unfair and deceptive business practices; breach of fiduciary duty; unconscionability; predatory lending (under Business and Professions Code section 17200); and quiet title.

BACKGROUND

Plaintiffs sued OneWest, Indymac, Cornerstone Lending, Fidelity National Title Company, NDEx, Lifetime Financial, and Mortgage Electronic Registration Systems (MERS). Plaintiffs obtained a real estate purchase loan of $467,500 from Cornerstone Lending, secured by a deed of trust against the residence that was recorded on April 27, 2007. The deed of trust identified plaintiffs as the borrowers, Cornerstone Lending as the lender, MERS as the nominal beneficiary, and Fidelity National Title Company as the trustee. In the deed of trust, plaintiffs granted title to their residence to the trustee, in trust, with the power of sale.

The deed of trust stated: "MERS (as nominee for Lender and Lender's successors and assigns) has the right[:] to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling the Security Instrument." The deed of trust also contained an adjustable rate rider, which stated in bold capital lettering that "[t]he note contains provisions allowing for changes in the interest rate and the monthly payment. The note limits the amount the borrower's interest rate can change at any one time and the maximum rate the borrower must pay." The initial interest rate of 9.990 percent would apply until May 1, 2010, and could change every six months thereafter. The rate changes would be determined by adding 6.000 percent to the LIBOR index, but would not be more than 1.000 percent higher than the previous rate, except for the first rate change, which would be between 9.990 percent and 12.990 percent. The rate would never be higher than 15.990 percent or lower than 9.990 percent.

A notice of default was recorded by NDEx on February 20, 2009, "as Agent for Beneficiary." The notice of default identified MERS as the beneficiary, and advised plaintiffs to contact Indymac to arrange for payment to stop the foreclosure. The deed of trust was assigned to Indymac on March 21, 2009. The assignment was executed by MERS, "as nominee for Cornerstone Lending," and was recorded on April 2, 2009. NDEx was substituted as trustee under the deed of trust on April 1, 2009. The substitution was executed by Indymac, and was recorded on April 21, 2009. On May 18, 2009, the deed of trust was assigned to OneWest. The assignment was executed by Indymac, and was recorded on June 10, 2009. A notice of trustee's sale was recorded by NDEx on May 26, 2009. OneWest bought plaintiffs' residence in the foreclosure sale, and a trustee's deed upon sale was recorded on June 24, 2009.

The essence of the complaint is that Cornerstone Lending engaged in predatory lending, giving plaintiffs a loan they could not afford (when the interest rate adjusted after three years), and failing to make certain unspecified disclosures. Plaintiffs also complain about alleged defects in the foreclosure process, such as NDEx not having the original promissory note and not having recorded the substitution of trustee before starting the foreclosure, and that MERS is an "'artificial'" entity without authority to execute an assignment of the deed of trust. No wrongdoing is attributed to OneWest, and the only allegation against OneWest is as follows: "Plaintiffs are informed and therefore believe that Defendant ONE WEST BANK, FSB . . . is, and at all times mentioned in this complaint was, a business organization, form unknown doing business in the County of Los Angeles, State of California, and is the successor-in-interest of INDYMAC FEDERAL BANK." (Boldface omitted.) There are likewise no allegations that Indymac succeeded to any interest of Cornerstone Lending, or itself engaged in any wrongful conduct.

OneWest generally demurred to all 19 causes of action. At the February 26, 2010 hearing, the trial court sustained the demurrer without leave to amend, concluding that "nowhere in the complaint does it tell me that plaintiff entered into a mortgage loan agreement with OneWest. Nowhere have they alleged that they tendered the amount due on the loan. . . . You can't obtain relief from a completed foreclosure without alleging a tender of the payment due on the loan." The trial court also found that the state law claims were "preempted by HOLA" because "OneWest is a Federal Savings Bank." Plaintiffs did not file an opposition, but appeared at the hearing. Counsel asked for a continuance, due to the accidental death of plaintiff Artemio Hernandez on February 16, 2010. Counsel represented that she was unable to prepare an opposition due to plaintiff's death. The trial court pointed out that the opposition was already late at the time of plaintiff's death, to which counsel simply reiterated that she was hindered in her ability to prepare an opposition due to her inability to contact her clients. A judgment of dismissal was entered on February 26, 2010, and this timely appeal followed.

HOLA is the Home Owner's Loan Act (12 U.S.C. § 1461 et seq.).

Oppositions are due nine court days in advance of the hearing on a motion, which fell before the February 16, 2010 accidental death of plaintiff Artemio. (See Code of Civ. Proc., § 1005, subd. (b).)

DISCUSSION

A demurrer tests the legal sufficiency of the complaint. We review the complaint de novo to determine whether it alleges facts sufficient to state a cause of action. For purposes of review, we accept as true all material facts alleged in the complaint, but not contentions, deductions or conclusions of fact or law. We also consider matters that may be judicially noticed. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) When a demurrer is sustained without leave to amend, as it was here, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm." (Ibid.)

The trial court took judicial notice of the deed of trust, assignments, and other relevant recorded documents, which we review for abuse of discretion. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 (Fontenot).) It is well settled that the documents at issue are subject to judicial notice, so we find no abuse of discretion. ( Id. at pp. 266-267.)

"The plaintiff bears the burden of proving there is a reasonable possibility of amendment. [Citation.] . . . [¶] To satisfy that burden on appeal, a plaintiff 'must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.' [Citation.] . . . The plaintiff must clearly and specifically set forth the 'applicable substantive law' [citation] and the legal basis for amendment, i.e., the elements of the cause of action and authority for it. Further, the plaintiff must set forth factual allegations that sufficiently state all required elements of that cause of action. [Citations.] Allegations must be factual and specific, not vague or conclusionary. [Citation.] [¶] The burden of showing that a reasonable possibility exists that amendment can cure the defects remains with the plaintiff; neither the trial court nor this court will rewrite a complaint. [Citation.] Where the appellant offers no allegations to support the possibility of amendment and no legal authority showing the viability of new causes of action, there is no basis for finding the trial court abused its discretion when it sustained the demurrer without leave to amend. [Citations.]" (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43-44 (Rakestraw).)

There are two categories of claims in plaintiffs' complaint: (1) claims arising from the origination of the loan, and (2) claims arising from the foreclosure process. As to the claims belonging to the first category, OneWest's lack of participation in the origination of the loan absolves it from liability in the absence of any facts or well- articulated theories sufficient to impute liability on it. Furthermore, because none of the loan origination claims, even if viable against other defendants, entitle plaintiffs to any remedy that would unwind the transaction, there is no reason for OneWest to remain in this lawsuit. As to the foreclosure claims, incurable defects in the pleadings prevent the foreclosure sale from being voided and, therefore, fail to state any basis for keeping OneWest in this action. We therefore affirm the trial court's judgment of dismissal.

1. Loan Origination Claims

None of plaintiffs' claims are actionable against OneWest because the complaint does not state any facts linking OneWest to any wrongful conduct. The gravamen of the complaint is that errors and misrepresentations were made in the origination of the loan. Notwithstanding the very narrow nature of the claims made, each cause of action is brought against "[a]ll [d]efendants." The only allegation specific to OneWest is that it was "the successor-in-interest of INDYMAC FEDERAL BANK." Likewise, there are no allegations of wrongdoing by Indymac, or facts imputing liability for any wrongdoing by the original lender to Indymac. On appeal, plaintiffs argue that when the deed of trust was assigned to OneWest, any burdens arising under the deed of trust were also transferred to OneWest. Plaintiffs have cited to no authority supporting their claim that assignment of a beneficial interest in a deed of trust carries with it liability arising out of misconduct occurring during origination of the loan. Plaintiffs cited Civil Code sections 1084, 2936, and 1589 (without demonstrating their applicability), but these authorities do not support plaintiffs' proposition.

Civil Code section 1084 provides: "The transfer of a thing transfers also all its incidents, unless expressly excepted; but the transfer of an incident to a thing does not transfer the thing itself." This section applies principally to easements, and other incidents to real property. (See Trask v. Moore (1944) 24 Cal.2d 365, 370 ["incidents and appurtenances to lands pass with a transfer thereof unless expressly excepted"].) In the context of mortgages, this section has been interpreted to pass the debt upon assignment of a mortgage, giving the assignee the right to foreclose. (Storch v. McCain (1890) 85 Cal. 304, 306-307.) In the same vein, Civil Code section 2936 provides: "The assignment of a debt secured by mortgage carries with it the security." This section provides that a deed of trust or mortgage is "inseparable from the debt," and therefore when assigned, the debt is transferred as well. (Domarad v. Fisher & Burke, Inc. (1969) 270 Cal.App.2d 543, 553.) Civil Code section 1589 provides: "A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting." This statute addresses the element of acceptance in contract formation. (See Civ. Code, § 1565 et seq.) Plaintiffs have cited no cases interpreting these sections in the manner proposed, and have not provided any analysis that would support such an interpretation. It is plaintiffs' burden to make such a showing. (Rakestraw, supra, 81 Cal.App.4th at pp. 43-44.)

The general rule is that a successor does not succeed to the liabilities of the predecessor, except where there was a de facto merger, a continuation of the corporation, an agreement to assume liability, or a fraudulent attempt to avoid liability. (CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal.App.4th 1101, 1120.) No exceptions to the general rule were alleged in plaintiffs' complaint or set forth on appeal. It is not the job of this court to divine a theory or facts under which defendant may be held to answer. (Rakestraw, supra, 81 Cal.App.4th at pp. 43-44.) Nor have plaintiffs proposed the addition of any new facts which would give rise to liability on any of plaintiffs' theories.

While we acknowledge, as plaintiffs point out, that assignees of a creditor may be liable for Truth in Lending Act (TILA) violations "if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement," plaintiffs have not so alleged, and have not articulated any facts, in the trial court or on appeal, which would evidence any deficiency in the disclosures they received which would have been apparent on the face of the disclosure statement. (15 U.S.C. § 1641.) Likewise, plaintiffs have not pointed to any authority providing for assignee liability under any other statute (other than the unsupported claim in their appellate brief that "the trial court erroneously disregarded the well established TILA, HOEPA (Home Owner's Equity Protection Act [of 1994]), RESPA, California law, and ample precedence [sic] in common law that establish assignee liability against respondent ONEWEST," none of which were pointed out to the trial court, or to this court for that matter, because plaintiffs failed to submit any opposition to the demurrer and failed to include any meaningful analysis in their appellate brief). Because no facts that would support a finding of any wrongdoing by OneWest in the origination of the loan were either alleged in the complaint or subsequently brought to this court's attention, we can find no error in OneWest's dismissal for these claims.

2. Foreclosure Claims

To the extent plaintiffs posit that an irregularity in the foreclosure process would make the foreclosure sale voidable against OneWest, no such facts have been alleged or suggested. Courts have routinely rejected plaintiffs' theory that MERS was not authorized to assign the deed of trust or initiate a foreclosure sale. (See Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1151, 1158; Fontenot, supra, 198 Cal.App.4th at p. 270; Robinson v. Countrywide Home Loans, Inc. (2011) 199 Cal.App.4th 42, 46.)

Further, we can find no basis for plaintiffs' claim that NDEx "illegally" recorded a notice of default because its recording of the notice predated the recording (not the execution) of its substitution as trustee. First, the notice of default was executed by NDEx in its capacity "as Agent for Beneficiary [MERS]" instead of as the trustee. A notice of default may be recorded by "[t]he trustee, mortgagee, or beneficiary, or any of their authorized agents'" (Civ. Code, § 2924, subd. (a)(1), italics added.) Second, "[i]f the substitution is executed, but not recorded, prior to or concurrently with the recording of the notice of default, the beneficiary or beneficiaries or their authorized agents shall cause notice of the substitution to be mailed prior to or concurrently with the recording thereof, in the manner provided in Section 2924b, to all persons to whom a copy of the notice of default would be required to be mailed by the provisions of Section 2924b. An affidavit shall be attached to the substitution that notice has been given to those persons and in the manner required by this subdivision." (Civ. Code, § 2934a, subd. (b).) Here, the proper affidavit of mailing was recorded with the substitution of trustee . Also, plaintiffs' claim that the foreclosure was invalid under section 2932.5 of the Civil Code (requiring that the assignment of a beneficial interest in a mortgage be recorded before the power of sale may be executed) lacks merit, because section 2932.5 applies only to mortgages and not to deeds of trust. (Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118, 122.)

We similarly reject plaintiffs' claim that the foreclosure is voidable because defendant never took "actual possession of the original promissory note." The statutory provisions governing nonjudicial foreclosure (Civ. Code, § 2924 et seq.) do not require possession of the original note. For example, a trustor, mortgagor, or beneficiary under a deed of trust, may request by written demand "a true, correct and complete copy of the note or other evidence of indebtedness." (Civ. Code, § 2943, subds. (a)(4), (b)(1)-(2), italics added.) We decline to add the requirement to the comprehensive foreclosure scheme set forth in Civil Code sections 2924 through 2924k that only one in possession of the original note may foreclose. (Gomes v. Countrywide Home Loans, Inc., supra, 192 Cal.App.4th at p. 1154.)

On appeal, plaintiffs seek to amend the complaint to add allegations that the above transfers are somehow invalidated because of "robo-sign[ing]" of the assignments by various corporate officers and notaries. However, no factual basis for this claim has been set forth, other than the baseless assertion that a "robo-sign[ing]" scandal has been disclosed in various news reports (which plaintiffs appear to argue supports an inference that it occurred in this case). To the extent that such conduct by the notaries and executives sounds in fraud, it must be alleged with specificity. (See, e.g., Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 46-47.) Plaintiffs have not demonstrated the viability of this claim, or its legal basis.

Plaintiffs also failed to plead tender of the loan proceeds. "A valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust." (Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117; Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109 [plaintiffs are required to allege tender of amount of secured indebtedness to maintain any cause of action concerning a sale irregularity].) The tender rule applies to claims to quiet title, rescission, and even declaratory relief. (McElroy v. Chase Manhattan Mortgage Corp. (2005) 134 Cal.App.4th 388, 394; Fleming v. Kagan (1961) 189 Cal.App.2d 791, 796.) Contrary to plaintiffs' contention, rescission under TILA also requires an allegation of tender. (See 15 U.S.C. § 1635, subd. (b) [right to rescind conditioned on return of loan proceeds]; Garcia v. Wachovia Mortg. Corp. (C.D.Cal. 2009) 676 F.Supp.2d 895, 901 ["the majority of Courts to address the issue recently have required that borrowers allege an ability to tender the principal balance of the subject loan in order to state a claim for rescission under TILA"].)

Plaintiffs argue on appeal that the trial court erred when it failed to grant leave to amend so they could allege tender, reasoning that tender was alleged in the initial complaint, but was inadvertently omitted in the first amended complaint. The tender allegation in the initial complaint was as follows: "A breach of the obligation for which the deed of trust is security has not occurred because defendant has refused plaintiffs' tender of principal and interest owing on that obligation." When considering demurrers, courts must read the allegations in context. (McKenney v. Purepac Pharmaceutical Co. (2008) 167 Cal.App.4th 72, 77; Taylor v. City of Los Angeles Dept. of Water & Power (2006) 144 Cal.App.4th 1216, 1228.) Plaintiffs' initial complaint alleged that they attempted to make their monthly payment (as can be inferred from the allegation that no default of their obligation to pay occurred). Plaintiffs did not allege they tendered the entire proceeds owed under the loan, or to have even tendered their entire monthly payment (the deed of trust required the payment of principal, interest, and escrow items for property taxes, mortgage insurance, among other things). Plaintiffs' tender of their monthly "principal and interest" payments does not constitute "tender" sufficient to rescind the agreement, or cure their default. On appeal, plaintiffs only seek to revive their deficient tender allegations. Clearly, no abuse of discretion in failing to grant leave to amend occurred.

Lastly, plaintiffs' contention that the trial court erred when it denied the request to continue the February 26, 2010 demurrer hearing based on plaintiff Artemio Hernandez's accidental death on February 16, 2010, is without merit, because it is obvious, as aptly demonstrated on appeal, that nothing could have salvaged their complaint. It is also clear that this unfortunate occurrence had no impact on plaintiffs' ability to oppose the demurrer because it occurred after plaintiffs' opposition was due for filing (see fn. 3, ante).

DISPOSITION

Because plaintiffs have failed to state any legal basis to set aside the completed foreclosure sale, and no basis for the recovery of damages from OneWest, we affirm the judgment of dismissal. Respondent is to recover its costs of appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

GRIMES, J. WE CONCUR:

BIGELOW, P. J.

FLIER, J.


Summaries of

Hernandez v. Onewest Bank, FSB

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION EIGHT
Jan 31, 2012
No. B224205 (Cal. Ct. App. Jan. 31, 2012)
Case details for

Hernandez v. Onewest Bank, FSB

Case Details

Full title:ARTEMIO HERNANDEZ et al., Plaintiffs and Appellants, v. ONEWEST BANK, FSB…

Court:COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION EIGHT

Date published: Jan 31, 2012

Citations

No. B224205 (Cal. Ct. App. Jan. 31, 2012)