Opinion
D072249
06-08-2018
KAREN SMITH, Plaintiff and Appellant, v. HSBC BANK, USA, N.A. et al., Defendants and Respondents.
Rodriguez Law Group and Patricia Rodriguez for Plaintiff and Appellant. Hall Huguenin, Howard D. Hall and Robert J. Im for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2016-00041373-CU-OR-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Timothy B. Taylor, Judge. Affirmed. Rodriguez Law Group and Patricia Rodriguez for Plaintiff and Appellant. Hall Huguenin, Howard D. Hall and Robert J. Im for Defendants and Respondents.
In Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808 (Saterbak), this court held that a borrower cannot preemptively sue before a nonjudicial foreclosure sale to determine whether the beneficiary of a deed of trust is authorized to foreclose. Despite this settled law, Karen Smith brought such a presale lawsuit, seeking to stop a threatened nonjudicial foreclosure of her property after she defaulted on a loan. She appeals after the trial court granted judgment on the pleadings. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The factual summary is based on the well pleaded allegations of Smith's complaint and facts properly subject to judicial notice. (See People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777.)
In June 2004 Smith borrowed $500,000 from WMC Mortgage Corporation, secured by a deed of trust on real property (the property). The deed of trust names Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary as nominee for the lender and the lender's successors and assigns. Smith's promissory note and trust deed were pooled into a securitized trust labeled Merrill Lynch Mortgage Investors Trust, Mortgage Loan Assetbacked Certificates, Series 2005-WMC1, with a closing date in 2005.
The deed of trust identifies the borrower as "Ray L. Smith and Karen Smith, husband and wife as joint tenants." However, Karen Smith is the only plaintiff. The parties do not explain why Ray L. Smith is not a party.
On June 15, 2009, MERS assigned the deed of trust to Merrill Lynch Mortgage Lending Inc. (Merrill Lynch), which on the same day assigned the trust deed to HSBC Bank USA, National Association as Trustee for the MLM1 Trust Services 2005-WMC1 (HSBC Bank as Trustee).
In January 2015 HSBC Bank as Trustee caused a notice of default and election to sell to be recorded against the property. In January 2016 a notice of trustee's sale was recorded. However, no foreclosure sale of the property has occurred.
Smith also alleges that in September 2013, Bank of America, N.A., assigned its interest in the deed of trust to Nationstar Mortgage, LLC (Nationstar), and she has attached that purported assignment as an exhibit to her complaint. However, Smith's briefs do not contain any argument for reversal of the judgment based on this purported assignment. Accordingly, any issue regarding that purported assignment is forfeited and we do not consider it. (Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 685 [issues not raised in appellant's opening brief are forfeited].)
In November 2016 Smith commenced this action against HSBC Bank USA, N.A. (HSBC), Nationstar, MERS (collectively, Defendants) and Clear Recon Corp. (Clear Recon). She alleges that HSBC was assigned the original lender's interest in the note, Nationstar services the loan, Clear Recon is the foreclosure trustee, and MERS is the "nominee and beneficiary" and an "online member only database of alleged transfers of residential mortgages through nonrecorded assignments."
Smith's complaint alleges causes of action for (1) wrongful foreclosure; (2) violation of Civil Code section 2924, subdivision (a)(6) (section 2924(a)(6)); (3) cancellation of written instruments; (4) violation of the covenant of good faith and fair dealing; and (5) violation of the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.).
Undesignated statutory references are to the Civil Code.
The gravamen of Smith's complaint is that the deed of trust was "purportedly transferred and assigned into the [m]ortgage [l]oan [s]ecuritized [t]rust . . . well past the 2005 [c]losing [d]ate of the [s]ecurized [t]rust, thereby making it an invalid and void transfer." Her complaint also alleges the assignment was not "complete" with an "unbroken chain of transfers and assignments . . . ."
Clear Recon filed a declaration of nonmonetary status and was effectively removed from the litigation when no party timely objected. After answering Smith's complaint, Defendants filed a motion for judgment on the pleadings, primarily asserting that Smith lacked standing because no foreclosure had yet occurred. Defendants accompanied their motion with a request for judicial notice of a recorded assignment of deed of trust and two substitution of trustee documents.
Section 2924l provides that a trustee under a deed of trust may file a declaration of nonmonetary status stating that it reasonably believes it was named as a defendant solely in its capacity as trustee, and not for misconduct in its duties. If no party timely objects, the trustee shall not be required to participate any further in the action. (See Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 351.)
After considering Smith's opposition and conducting an unreported hearing, the court granted the request for judicial notice and judgment on the pleadings.
DISCUSSION
I. THE COURT PROPERLY GRANTED JUDGMENT ON THE PLEADINGS
A. The Standard of Review
The standard of review for a motion for judgment on the pleadings is the same as that for a demurrer: We treat the pleadings as admitting all material facts properly pleaded, but not contentions or legal conclusions, and consider de novo whether the complaint states a cause of action. (Dunn v. County of Santa Barbara (2006) 135 Cal.App.4th 1281, 1298 (Dunn).) We do not credit allegations that are contradicted by facts subject to judicial notice or are evident from exhibits attached to the complaint. (Hill v. Roll Intern. Corp. (2011) 195 Cal.App.4th 1295, 1300.)
B. Smith Lacks Standing to Allege Wrongful Foreclosure
The trial court correctly determined Smith lacks standing to allege wrongful foreclosure. California courts do not allow preemptive suits to determine whether a given entity had authority to initiate a nonjudicial foreclosure because such a requirement would be inconsistent with the policy behind nonjudicial foreclosure providing a quick, inexpensive, and efficient remedy. (Saterbak, supra, 245 Cal.App.4th at p. 814.) Accordingly, where, as here, the complaint alleges that a nonjudicial foreclosure sale has not yet occurred, plaintiff lacks standing to sue for wrongful foreclosure. (Ibid.)
Contrary to Smith's assertions, this principle was not overturned or questioned by Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919 (Yvanova). Yvanova considered the narrow question of whether, after a foreclosure sale has occurred, a borrower may sue for wrongful foreclosure on allegations that a purported assignment of the note and deed of trust to the foreclosing party had defects rendering the assignment void. (Id. at p. 923.) As to that limited issue, the court concluded that the borrower had standing. However, the Yvanova court underscored the narrowness of its holding, stating, "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." (Id. at p. 924.) This limited nature of Yvanova's holding was recognized by this court in Saterbak, supra, 245 Cal.App.4th 808, which held that a plaintiff may not bring a preforeclosure lawsuit to challenge the defendant's ability to effect a nonjudicial foreclosure. (Id. at pp. 814-815.)
In her opening brief, Smith incorrectly cites to Yvanova by a 2014 Westlaw citation ("2014 WL 4233383"), which is to the Supreme Court's order granting review in the case.
Moreover, as we explained in Saterbak, supra, 245 Cal.App.4th 808, even in the postforeclosure context, Yvanova, supra, 62 Cal.4th 919 recognizes borrower standing to challenge an assignment "only where the defect in the assignment renders the assignment void rather than voidable." (Saterbak, at p. 815, italics omitted.) Contrary to Smith's assertions, the court in Yvanova expressly declined to consider whether a postclosing date transfer into a securitized trust is void or merely voidable. (Yvanova, at p. 931.)
However, Saterbak, supra, 245 Cal.App.4th 808 squarely addressed that issue and concluded that an untimely assignment to a securitized trust is merely voidable rather than void. (Id. at p. 815.) That alone is sufficient authority to dispose of Smith's claim. (See People v. Bolden (1990) 217 Cal.App.3d 1591, 1598.) And although Smith's complaint alleges that the assignment to HSBC is "void," in reviewing a judgment on the pleadings we accept as true only factual allegations and not legal conclusions. (Yhudai v. Impac Funding Corp. (2016) 1 Cal.App.5th 1252, 1257 (Yhudai).)
Moreover, an unbroken line of other Court of Appeal decisions reach the same conclusion—an untimely assignment to a securitized trust is merely voidable and not void. (Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 43 [following Saterbak, holding that "any alleged irregularities in the securitization process are merely voidable"; see id. at pp. 42-43; Mendoza v. JPMorgan Case Bank, N.A. (2016) 6 Cal.App.5th 802, 816 (Mendoza) [following Saterbak and stating that to hold otherwise, "we would have to reject all of the New York, California, and federal cases . . . and adopt the discredited Glaski [v. Bank of America (2013) 218 Cal.App.4th 1079] interpretation of New York law, an interpretation expressly rejected by the appellate courts in New York"]; see id. at pp. 811-817; Yhudai, supra, 1 Cal.App.5th at pp. 1256-1260.) We follow this consistent line of authority and conclude that the assignment of Smith's note to the securitized trust, as alleged in Smith's complaint, was at most voidable, rather than void. Accordingly, Smith does not have standing to challenge the alleged voidable assignment. (Saterbak, supra, 245 Cal.App.4th at p. 815.)
Disagreeing with this result, Smith asserts, "The Supreme Court's decision in Yvanova[, supra, 62 Cal.4th 919] makes it utterly clear that homeowners in the same situation as the Plaintiff here indeed have proper standing to allege foreclosure attempts against the Home are wrongful because the assignments by which the foreclosing parties purportedly took a beneficial interest in the deed of trust was [sic] void." As proof, she claims that after deciding Yvanova, supra, 62 Cal.4th 919, the California Supreme Court remanded three other cases (Boyce v. T.D. Service Company, S226267; Mendoza v. JPMorgan Chase Bank, S220675; and Keshtgar v. US Bank, S220012 (Keshtgar)) "which all confirm and follow Yvanova, and address the issue of a borrower's standing to challenge the validity of the foreclosing entity's interest, prior to the execution of a foreclosure sale." Smith concludes, therefore, that "Yvanova is the case in point to address both pre AND post foreclosure issues such as the ones alleged" here.
However, the subsequent history of these cases—which Smith ignores—refutes her assertion. On remand after Yvanova, supra, 62 Cal.4th 919, the Court of Appeal in Mendoza, supra, 6 Cal.App.5th 802 held that the plaintiff lacked standing to challenge alleged irregularities in the securitization of her loan. The court stated there was "nothing in Yvanova to compel us to rethink our previous opinion that plaintiff lacks standing to challenge the validity of the assignment because her allegations at best suggest it is voidable." (Mendoza, supra, 6 Cal.App.5th at p. 817.) Similarly, after remand in Keshtgar v. U.S. Bank, N.A. (Aug. 8, 2016, B246193, 2016 Cal.App.Unpub Lexis 5822)—a preforeclosure case—the court held that "Yvanova has no bearing" because Yvanova applies only to actions alleging wrongful foreclosure, "not actions to preempt foreclosure." (Ibid.)
Keshtgar is unpublished and for that reason alone Smith's reliance on it is improper. (Cal. Rules of Court, rule 8.1115(a).) We discuss Keshtgar only because Smith cites it, recognizing that Keshtgar has no precedential value.
C. No Private Cause of Action under Section 2924 (a)(6)
Section 2924(a)(6) provides in part:
"No entity shall record or cause a notice of default to be recorded or otherwise initiate the foreclosure process unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest."
In her second cause of action, Smith alleges that Defendants violated section 2924(a)(6) because "HSBC is not the holder of the beneficial interest" under the deed of trust "as the loan was . . . comingled into the securitized trust . . . ." Smith's opening brief further contends that Defendants violated section 2924(a)(6) because "the named Defendants have failed to produce any Assignment or any documentation evidencing a transfer of an interest in the Plaintiff's Deed of Trust to any of the named Defendants."
The court correctly granted judgment on the pleadings on this cause of action because there is no private right of action under section 2924(a)(6) for either injunctive relief or money damages. (Lucioni v. Bank of America, N.A. (2016) 3 Cal.App.5th 150, 155; Zeppeiro v. Green Tree Servicing, LLC (9th Cir. 2017) 679 Fed.Appx. 592, 593 (Zeppeiro).) Moreover, contrary to Smith's assertion, the Defendants did produce the assignment evidencing a transfer from MERS to Merrill Lynch, and the court took judicial notice of that assignment. Smith attached as an exhibit to her complaint the assignment from Merrill Lynch to HSBC as Trustee.
D. Cancellation of Instruments—Abandoned
Smith's third cause of action is for cancellation of written instruments. On appeal, Smith has not raised any issue in her opening brief with respect to the trial court's order granting judgment on this cause of action. The third cause of action is, therefore, deemed abandoned. (See Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 984, fn. 1 [failure to discuss cause of action on appeal from order sustaining demurrer constitutes abandonment of that cause of action on appeal].)
E. Breach of Implied Covenant
Smith's fourth cause of action alleges a breach of the implied covenant of good faith and fair dealing. This claim relies on the allegation that "Defendants have commenced foreclosure proceedings . . . in order to eventually foreclose and take [p]laintiff's home without any legal authority." In her brief, Smith adds that Defendants breached the implied covenant by "recording documents with the county recorder indicating Defendants were the beneficiaries of the loan when they were not and recorded notices [sic]." Thus, this cause of action flows from the premise that Defendants did not have an interest in Smith's loan and thus were not entitled to attempt to foreclosure on her property. However, as discussed ante, a borrower does not have standing to preemptively challenge the validity of assignments before a nonjudicial foreclosure occurs. (Saterbak, supra, 245 Cal.App.4th at p. 814.) Thus, Smith cannot assert a claim for breach of the implied covenant of good faith and fair dealing on this ground.
Although not alleged in the complaint, in her opening brief Smith also contends that Defendants breached the implied covenant by failing to inform her that her note and deed of trust were sold. Even construing this as an offer to amend the complaint, it does not help Smith. "'The implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.'" (Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094, italics omitted.) "A promissory note is a negotiable instrument the lender may sell without notice to the borrower. [Citation]. The deed of trust, moreover, is inseparable from the note it secures, and follows it even without a separate assignment." (Yvanova, supra, 26 Cal.4th at p. 927.) Accordingly, even on this unpled theory, Smith cannot state a cause of action for breach of the implied covenant of good faith and fair dealing.
F. UCL Cause of Action
Smith's fifth cause of action asserts a violation of the UCL. This cause of action is predicated on the preceding causes of action and the alleged improper securitization of Smith's deed of trust. Smith alleges that Defendants engaged in various deceptive business practices by "[u]nlawfully commencing foreclosure proceedings . . . without any legal standing or authority to do so." She also alleges that Defendants violated numerous statutes designed "to promote and preserve home ownership and to prevent foreclosures . . . ." Smith further alleges that Defendants, as part of their business practices, offered "false or fraudulently prepared documents" to establish their rights in the chain of title to the property.
The UCL "prohibits unfair competition, including unlawful, unfair, and fraudulent business acts." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143.) Smith fails to state a claim under the UCL because she predicates her UCL claim on allegations that fail to state other viable claims. For example, as discussed ante, Smith lacks standing to pursue claims based on the alleged improper securitization of her loan and trust deed. As Smith concedes in her reply brief, the "crux" of her allegations is that Defendants engaged in foreclosure proceedings without legal basis because the "purported transfer of interest" in her deed of trust occurred after the closing date of the securitized trust, "thereby rendering said transfer void." Thus, to the extent her UCL cause of action rests on the same alleged improper securitization of her loan as alleged in paragraph 125 of her complaint, it fails because the underlying claims fail. (See Price v. Starbucks Corp. (2011) 192 Cal.App.4th 1136, 1147, superseded by statute on other grounds as stated in Cabardo v. Patacsil (E.D.Cal. 2017) 248 F.Supp.3d 1002, 1011-1012.)
Smith also fails to plead a claim under the UCL's "unfair" prong. An alleged unfair practice predicated on public policy, as Smith alleges in paragraph 122 of her complaint, must be tethered to specific constitutional, statutory, or regulatory provisions. (Scripps Clinic v. Superior Court (2003) 108 Cal.App.4th 917, 940.) Here, Smith attempts to satisfy this requirement by alleging a laundry list of various sections of the Civil Code. However, her complaint merely alleges statutory violations in conclusory legal terms and, as such, is inadequate to state a UCL claim because a motion for judgment on the pleadings does not admit the truth of legal conclusions. (Dunn, supra, 135 Cal.App.4th at p. 1298.)
Moreover, to demonstrate standing to assert a UCL claim, Smith's complaint must allege (1) economic injury and (2) that the economic injury was caused by the unfair business practice that is the gravamen of the claim. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 321-322, 326.) A plaintiff fails to satisfy this causation requirement if she would have suffered the same harm whether or not defendant complied with the law. (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1099.)
Smith's complaint cannot satisfy the first prong because the sale of the property has not occurred. Moreover, she cannot satisfy the second prong because it is undisputed that she stopped making payments, causing the loan to go into default. That default would have led to foreclosure, regardless of Defendants' conduct. (In re Turner (9th Cir. 2017) 859 F.3d 1145, 1151 [no UCL standing because plaintiff's failure to make loan payments caused the default regardless of alleged deficiencies in the deed of trust that were allegedly caused by defendants' conduct]; Zeppeiro, supra, 679 Fed.Appx. at p. 593 [no pending foreclosure, plaintiff lacks standing to pursue a UCL claim].)
G. The Court Properly Took Judicial Notice
On Defendants' request, the trial court took judicial notice of (1) the assignment of Smith's deed of trust from MERS to Merrill Lynch, which was recorded June 15, 2009; (2) the substitution of trustee, recorded on December 17, 2014; and (3) the substitution of trustee, recorded January 8, 2016. Primarily relying on Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366 (Herrera), Smith contends the court erroneously took judicial notice of the truth of the contents of these documents.
"'Judicial notice is the recognition and acceptance by the court . . . of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.'" (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882.) A court may take judicial notice of something that cannot reasonably be controverted, even if it negates an express allegation of the complaint. (Columbia Casualty Co. v. Northwestern Nat. Ins. Co. (1991) 231 Cal.App.3d 457, 468.) This includes recorded deeds. (Maryland Casualty Co. v. Reeder (1990) 221 Cal.App.3d 961, 977.)
The court properly took judicial notice of the legal effect of the assignment of the deed of trust—i.e., it transferred the interest in the note and deed of trust from MERS to Merrill Lynch. (Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1118.) The court could take judicial notice of the fact of the document's recordation, the date the document was recorded and executed, the parties to the transaction reflected in the document, and the document's legally operative language and legal effect. (See Yvanova, supra, 62 Cal.4th at p. 924, fn. 1 [taking judicial notice of assignment of deed of trust].) Taking judicial notice of the legal effect of these documents does not mean the court improperly took judicial notice of any disputed facts recited in them. (Poseidon, supra, 152 Cal.App.4th at p. 1118.)
Herrera, supra, 196 Cal.App.4th 1366, upon which Smith relies, is materially distinguishable. There, the plaintiff disputed the veracity of recorded documents establishing the property's chain of title. In Herrera, the assignment recited that JPMorgan Chase Bank, who was the "successor in interest to Washington Mutual Bank, successor in interest to Long Beach Mortgage Company" (id. at p. 1375, capitalization omitted), assigned all of its beneficial interest under the deed of trust to the bank defendant. The Herrera court noted that the statement that JPMorgan Chase Bank was the successor in interest to Long Beach Mortgage Company through Washington Mutual Bank was hearsay, disputed by plaintiffs, and not the proper subject of judicial notice. (Ibid.)
"Thus, Herrera[, supra, 196 Cal.App.4th 1366] did not hold that judicial notice cannot be taken of the legal effect of a legally operative document . . . ; it simply held that it could not be done in that case, because the vitality of the assignment was reasonably subject to dispute without independent proof that the party assigning the interest had the authority to do so." (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 756.)
Unlike the situation in Herrera, supra, 196 Cal.App.4th 1366, here the trial court did not take judicial notice of any disputed facts in the assignment of deed of trust, or in the substitution of trustee documents, but rather took judicial notice of the documents' legal effect. This was entirely proper; indeed, Smith herself attached as exhibits to her complaint the original deed of trust, as well as the assignment from Merrill Lynch to HSBC Bank as Trustee.
H. No Abuse of Discretion in Denying Leave to Amend
Smith contends that the trial court abused its discretion in granting judgment on the pleadings without first affording her leave to amend her complaint. However, to show error in denial of leave to amend, Smith must "clearly and specifically state 'the legal basis for amendment, i.e., the elements of the cause of action,' as well as the 'factual allegations that sufficiently state all required elements of that cause of action.'" (Maxton v. Western States Metals (2012) 203 Cal.App.4th 81, 95, disapproved on other grounds in Ramos v. Brenntag Specialties, Inc. (2016) 63 Cal.4th 500, 508.) "'The assertion of an abstract right to amend does not satisfy this burden.'" (Maxton, at p. 95.)
The record shows that Smith made no showing in the trial court regarding how she could further amend her complaint to state a valid cause of action, nor did she file a proposed first amended complaint. On appeal, Smith likewise has not identified any facts she could allege to cure defects in the complaint. In the trial court, and again on appeal, she merely states that if the court determines her complaint is defective, she should be granted leave to amend. This is insufficient to demonstrate that the trial court abused its discretion in denying leave to amend. (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 44.)
DISPOSITION
The judgment is affirmed. Defendants are entitled to costs incurred on appeal.
NARES, Acting P. J. WE CONCUR: AARON, J. IRION, J.