Perry et al v. National Default Servicing Corporation (NDSC) et al, No. 5:2010cv03167 - Document 29 (N.D. Cal. 2010)
Court Description: ORDER Denying Preliminary Injunction Signed by Judge Lucy H. Koh on 08/20/2010. (lhklc2, COURT STAFF) (Filed on 8/20/2010)
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Perry et al v. National Default Servicing Corporation (NDSC) et al Doc. 29 **E-Filed 8/20/2010** 1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 NORTHERN DISTRICT OF CALIFORNIA 11 SAN JOSE DIVISION 12 13 14 15 16 17 18 19 20 21 22 23 Robert Perry; Tammy M. Rey, ) ) Plaintiffs, ) v. ) ) National Default Servicing Corporation; ) Kondaur Capital Corporation; EMC Mortgage ) Corporation; GMAC Mortgage LLC; Mortgage ) Electronic Registration Service, Inc.; And All ) Persons Unknown Claiming Any Legal or ) Equitable Right, Title, Estate, Lien or Interest in ) the Property Described in the Complaint Adverse ) to Plaintiffs’ Title, or Any Cloud Upon ) Plaintiffs’ Title Thereto, Does 1-100, ) ) Defendants. ) ) I. Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUNCTION [re: docket no. 8] Background A. Procedural History On June 25, 2010, Plaintiffs Robert Perry and Tammy M. Rey (“Plaintiffs”) filed the instant 24 25 26 action in the San Benito Superior Court against Defendants National Default Servicing Corporation, Kondaur Capital Corporation, EMC Mortgage Corporation, GMAC Mortgage LLC, 27 Mortgage Electronic Registration Service, Inc., Unknown Persons Claiming Any Legal Or 28 Equitable Right, Title, Estate, Lien or Interest in the Property Described in the Complaint Adverse Case No.: 10-CR-03167-LHK ORDER DENYING PRELIMINARY INJUNCTION Dockets.Justia.com 1 to Plaintiffs’ Title, or Any Cloud Upon Plaintiffs’ Title Thereto; and Does 1-100 (collectively, 2 “Defendants1”) alleging violations of the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601, et 3 seq., and of California law. On July 2, 2010, in response to Plaintiffs’ motion filed the same day, 4 the state court issued an ex parte temporary restraining order (“TRO”) enjoining Defendants from 5 6 transferring ownership interest in the subject property located at 1383 Perry Court, Hollister, CA 7 95023 (“the Property”) and setting the matter for further hearing on July 22, 2010. Not. of 8 Removal (Dkt. No. 1), Ex. B at 2. 9 10 11 Defendants thereafter removed this action to federal court on July 20, 2010, two days before the scheduled hearing set by the state court. See Dkt. No. 1. Because Plaintiffs asserted a claim over which this Court has original jurisdiction under 28 U.S.C. § 1441(b), removal was 12 13 14 appropriate. Defendants also rescheduled sale of the Property for August 6, 2010. This Court granted Plaintiffs’ ex parte motion for a TRO enjoining this sale and set a further hearing on 15 August 13, 2010 to determine whether the sale should be further enjoined by preliminary 16 injunction. Dkt. No. 14. 17 18 At the August 13, 2010 hearing, this Court took judicial notice of the following publiclyrecorded documents submitted with Defendants EMC Mortgage Corporation and Mortgage 19 Electronic Registration Systems, Inc.’s Request for Judicial Notice (“RJN”) (Dkt. No. 19): Deed of 20 21 Trust recorded April 26, 2007, Instrument No. 2007-0005460; Deed of Trust recorded April 26, 22 2007, Instrument No. 2007-0005461; Grant Deed recorded December 11, 2007; Notice of Default 23 recorded March 8, 2010; Assignment of Deed of Trust recorded June 9, 2010; Substitution of 24 Trustee recorded June 9, 2010; Notice of Trustee’s Sale recorded June 9, 2010. A court “may take 25 26 1 27 28 Defendants other than Kondaur Capital Corporation, EMC Mortgage Corporation and Mortgage Electronic Registration Systems, Inc. have not yet appeared in the case. Because the Court finds that the likelihood of success on the merits is low, and the balance of equities and the public interest do not favor an injunction, the preliminary injunction is denied as to all Defendants. 2 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 judicial notice of matters of public record outside the pleadings.” MGIC Indem. Corp. v. Weisman, 2 803 F.2d 500, 504 (9th Cir. 1986). 3 Based upon the arguments presented at the hearing, the pleadings filed by the parties, and 4 for the reasons set forth below, the Court DENIES Plaintiffs’ request for a preliminary injunction 5 6 7 enjoining the sale of the property. B. Factual Allegations 8 Plaintiffs executed a promissory note (“Note”), by which they borrowed $1,000,000.00 9 from Defendant GMAC Mortgage, LLC (“GMAC”), on April 23, 2007. RJN, Ex. 2 at 2. The 10 11 Note financed the purchase of the Property, to be used as Plaintiffs’ principal residence. RJN, Ex. 2 at 1, 2, 8. The Note secures a Deed of Trust (“Deed”), also executed on April 23, 2007, and 12 13 14 15 16 recorded against the Property. RJN, Ex. 2 at 3. The Deed states that: “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument. 19 Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, 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 this Security Instrument. 20 Id. at 2,3. 21 Every page of the Deed is initialed or signed by Plaintiffs. On March 8, 2010, a Notice of 17 18 22 Default (NOD) was recorded at the Clerk’s Office for the County of San Benito, stating that 23 Plaintiffs were $138,526.35 behind in payments as of March 5, 2010, having failed to make 24 25 payments beginning in July 2008. RJN, Ex. 4 at 1, 2. The NOD was signed by “EMC Mortgage 26 Corporation, as Beneficiary,” by “National Default Servicing Corporation, as Agent for the 27 Beneficiary,” and by “LSI Title Company - CA, as Agent for National Default Servicing 28 Corporation.” RJN, Ex. 4 at 2. The NOD states: 3 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 3 NOTICE IS HEREBY GIVEN THAT: NATIONAL DEFAULT SERVICING CORPORATION is either the original Trustee, the duly appointed substituted Trustee or acting as agent for the Trustee or Beneficiary under a Deed of Trust dated 04/23/2007, executed by ROBERT PERRY . . . AND TAMMY M. REY. . . 4 RJN, Ex. 4 at 2. 5 On March 30, 2010, MERS executed an Assignment of Deed of Trust (“Assignment”) 2 6 7 8 assigning “all its right, title and interest in” the Deed, “together with the note or notes therein described or referred to,” to Kondaur Capital Corporation (“Kondaur”). RJN, Ex. 5. On May 5, 2010, Kondaur executed a Substitution of Trustee (“Substitution”), substituting NDSC as the 9 10 11 trustee under the Deed. RJN, Ex. 6. Both the Assignment and the Substitution were recorded on June 9, 2010. RJN, Ex. 5, 6. On the same day, NDSC executed and recorded a Notice of Trustee’s 12 Sale stating that the Property would be sold on July 6, 2010 due to Plaintiffs’ default on the Note. 13 RJN, Ex. 7. 14 II. 15 Legal Standard “A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on 16 the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the 17 18 balance of equities tips in his favor, and that an injunction is in the public interest.” Winter v. 19 Natural Res. Def. Council, Inc., 129 S.Ct. 365, 374 (2008). The issuance of a preliminary 20 injunction is at the discretion of the district court. Indep. Living Ctr. v. Maxwell-Jolly, 572 F.3d 21 644, 651 (9th Cir. 2009). The party seeking the injunction bears the burden of proving these 22 elements. Klein v. City of San Clemente, 584 F. 3d 1196, 1201 (9th Cir. 2009). 23 III. Discussion 24 In their motion for a TRO, Plaintiffs state that “[t]he issue on this motion is capacity to 25 26 lawfully execute and record the latter Assignment, Substitution and Notice of Sale.” Dkt. No. 8 at 27 4. Plaintiffs advance two arguments regarding capacity. First, Plaintiffs argue that the NOD dated 28 March 25, 2010 was materially defective because it was signed by an incorrect party, rendering any 4 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 subsequent sale void or voidable. Id. at 4-6. Second, Plaintiffs argue that the originally-named 2 beneficiary in the Deed had no power to assign the Deed to another party. Id. at 6-9. Thus, 3 Plaintiffs argue, the later attempted assignment had no effect, and the Defendant noticing the 4 foreclosure sale has no authority to sell the Property. Plaintiffs are not likely to succeed on the 5 6 7 8 9 10 11 merits of either argument. A. Notice of Default Plaintiffs argue that the NOD was defective because it was signed by Defendant EMC Mortgage Corporation (“EMC”), in violation of California Civil Code § 2924, which requires that the NOD be signed by a trustee, mortgagee, beneficiary, or any of their agents. Plaintiffs allege that although EMC is identified in the NOD “as beneficiary,” EMC was not a beneficiary under the 12 13 14 15 Deed or the accompanying Note, and therefore that EMC had no capacity to sign the NOD. Plaintiffs argue that the mistaken listing of EMC “as beneficiary” and EMC’s lack of capacity to sign render the NOD “materially defective.” 16 The primary purpose of a notice of default is to provide notice of the amount in arrears. 17 Knapp v. Doherty, 123 Cal. App. 4th 76, 99 (2004). At the hearing on this motion, counsel for 18 Plaintiffs conceded that Plaintiffs received the NOD and that the NOD’s only alleged defect is 19 EMC’s lack of capacity to sign it. Further, counsel conceded that Plaintiffs do not allege that the 20 21 asserted problem with EMC’s capacity to sign the NOD prejudiced them. “Courts have rejected 22 claims of deficient notice where no prejudice was suffered as the result of a procedural 23 irregularity.” Pantoja v. Country Wide Home Loans, Inc., 640 F. Supp. 2d 1177, 1186-87 (N.D. 24 Cal. 2009) (rejecting claim that a notice of default signed by alleged non-beneficiary entitled 25 borrower to relief from foreclosure, when borrower failed to allege prejudice). In order for a defect 26 in the notice of default to be material, it must cause prejudice. Knapp, 123 Cal. App. 4th at 99. 27 There is no basis for relief from non-prejudicial irregularities in a default notice. 28 5 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 None of the cases cited by Plaintiff grants relief from foreclosure due solely to a defect in 2 the notice of default. On the contrary, many cases have held that more serious notice defects are 3 non-prejudicial and do not warrant setting aside a sale. See, e.g., Lehner v. U.S., 685 F.2d 1187, 4 1190-91 (9th Cir. 1982). In Lehner, the Ninth Circuit held that although a notice of foreclosure 5 6 sale was sent to the wrong address, Plaintiff’s actual notice cured any potential prejudice. Because 7 the Plaintiffs have identified no prejudice resulting from the alleged improper signature on the 8 NOD, the Court finds that there is little likelihood that Plaintiffs will succeed on the merits of this 9 claim. 10 11 B. Transfer and Assignment Plaintiffs argue that NDSC, which noticed the foreclosure sale of the Property, had no 12 13 14 power to do so. Plaintiffs concede that an assignment of the Deed and the Note to Kondaur was executed and recorded, and that thereafter Kondaur substituted NDSC for the previous trustee. See 15 Pls.’ Br. ISO TRO (Dkt. No. 8) at 8. However, Plaintiffs argue that the Assignment to Kondaur 16 was ineffective, thus voiding the Substitution. 17 18 Plaintiffs state two reasons that the assignment is invalid. First, Plaintiffs argue that MERS (the party purporting to assign the Deed and Note to Kondaur) had “only a nominal interest in the 19 trust deed,” and therefore could transfer no more than this nominal interest. Dkt. No. 8 at 7. 20 21 Second, Plaintiffs argue that transfer of the Note is governed by the California Commercial Code 22 which requires physical transfer and endorsement. Dkt. No. 8 at 7. Because MERS allegedly did 23 not deliver the physical Note to Kondaur, Plaintiffs contend that no actual transfer was made. 24 Plaintiffs are unlikely to succeed on the merits of either argument. Regarding MERS’ 25 capacity to assign, the Deed itself states that MERS is the “nominee for Lender and Lender’s 26 successors and assigns, and the beneficiary under the Deed of Trust.” It also states: 27 28 6 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 2 3 4 Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, 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 . . . . RJN, Ex. 2 at 3. 5 The page containing this language was initialed by Plaintiffs. Id. According to the plain language 6 7 of the Deed, MERS was the beneficiary and could exercise “all of [Borrower’s] interests,” 8 including foreclosure rights. Courts interpreting trust deeds appointing MERS as beneficiary and 9 nominee, as this one does, have held that “MERS had the right to assign its beneficial interest to a 10 third party.” Baisa v. Indymac Fed. Bank, No. CIV-09-1464 WBS JMF, 2009 U.S. Dist. LEXIS 11 103444 at *8-*11 (E.D. Cal. November 6, 2009). Therefore, the answer to the question Plaintiffs 12 pose in their moving papers, “[d]oes the trust deed confer any contractual powers on the nominal 13 beneficiary (i.e., MERS) to execute its terms?” is “yes.” 14 15 Plaintiffs further contend that Commercial Code provisions requiring physical transfer of a 16 note apply to foreclosures. Pls.’ Br. ISO TRO (Dkt. No. 8) at 6-9. However, the provisions of the 17 California Civil Code governing foreclosures, i.e. § 2924 et seq., are intended to be “exhaustive.” 18 Thus, the Commercial Code requirements cited by Plaintiff do not apply to transferring title of a 19 20 mortgage note. Saugstad v. Am. Home Mortg. Servicing Inc., No. 2:09-CV-03516-JAM-KJM, 2010 U.S. Dist. LEXIS 76628, at *11-12 (E.D. Cal. July 29, 2010); Moeller v. Lien, 25 Cal. App. 21 22 23 4th 822, 830 (1994). Accordingly, under California law, there is no requirement that the trustee have possession of the physical note before initiating foreclosure proceedings. See, e.g., 24 Yazdanpanah v. Sacramento Valley Mortg. Group, No. C 09-02024 SBA, 2009 U.S. Dist. LEXIS 25 111557, at * 23-*25 (N.D. Cal. Nov. 30, 2009) (citing cases); Wurtzberger v. Resmae Mortg. 26 Corp., No. 2:09-cv-01718-GEB-DAD, 2010 U.S. Dist. LEXIS 51751, at *9-*11 (E.D. Cal. Apr. 27 28 7 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 29, 2010); Benham v. Aurora Loan Servs., No. 09-2059 SC, 2010 WL 532685 at *2-*3 (N.D. Cal., 2 Feb. 9, 2010). 3 Based on the foregoing, the Court concludes that MERS properly assigned all interest in the 4 Deed and related Note to Kondaur on March 20, 2010, and that Kondaur had the power to 5 6 7 8 9 10 11 substitute NDSC for the originally-named trustee on May 5, 2010. See RJN, Ex. 5 and 6. Therefore, NDSC was authorized to notice the foreclosure sale. C. California Business and Professions Code § 17200 et seq. The UCL prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200. Accordingly, “[a]n act can be alleged to violate any or all of the three prongs of the UCL-unlawful, unfair, or 12 13 14 fraudulent.” Berryman v. Merit Prop. Mgmt., Inc., 152 Cal.App.4th 1544, 1554 (2007). In their complaint, Plaintiffs allege that “defendants have a statewide policy and practice of improperly 15 delegating to the sale trustee compliance with Civil Code sec. 2923.5 and the same constitutes a 16 violation of” the UCL, and that “defendants have a statewide policy and practice of improperly 17 assigning loans in default in order to avoid compliance with Civil Code sec. 2923.5 and 2923.52 18 contrary to law and the same constitutes a violation of” the UCL. Compl. at ¶¶17-18. Thus, 19 Plaintiffs’ UCL claims are entirely dependent on their claims that Defendants violated the cited 20 21 Civil Code provisions. If, as here, a plaintiff seeks to show a UCL violation on the basis of 22 otherwise unlawful acts, the UCL claim is only as good as the underlying claim or claims. Webb v. 23 Smart Document Solutions, LLC, 499 F.3d 1078, 1082 (9th Cir. 2007); Powell v. Residential 24 Mortg. Capital, No. C 09-04928 JF (PVT), 2010 U.S. Dist. LEXIS 59698 at *25-*26 (N.D. Cal. 25 May 24, 2010) (dismissing UCL claims, based on insufficiently-pled statutory violations). 26 Because this Court finds that the Plaintiffs have a very low likelihood of success on the merits of 27 28 8 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 any of their claims of unlawful activity by Defendants, Plaintiffs’ chances of success in their UCL 2 claims are likewise slim. 3 D. Alleged Violations of Cal. Civ. Code § 2923.52a and § 2923.5 4 In their reply papers, Plaintiffs raised for the first time in the context of this request for 5 6 injunctive relief claims that the foreclosure sale was invalid because Kondaur had failed to provide 7 a 90-day waiting period before directing the trustee, NDSC, to notice the sale, as required by Cal. 8 Civ. Code § 2923.52a. Plaintiffs also alleged that Kondaur had an obligation to comply with the 9 procedures in Cal. Civ. Code § 2923.5 which arose when it obtained the assignment from MERS. 10 11 In short, Plaintiffs argue that even if MERS and GMAC complied with § 2923.5, Kondaur was required to repeat those acts. Neither argument is likely to prevail. 12 At the hearing on this motion, Plaintiffs admitted that § 2923.52a’s 90-day waiting period is 13 14 inapplicable to exempt entities, and that if Kondaur was exempt, this claim must fail. Kondaur 15 submitted evidence, from a website maintained by the California Department of Corporations, 16 demonstrating that it has been exempted from this provision since 2009.2 Willis Decl. ISO 17 Kondaur’s Opp’n to Pls.’ Req. for Prelim. Inj., Ex. B. Therefore, at the time foreclosure 18 proceedings were initiated against Plaintiffs, Kondaur was exempt from this provision, and 19 Plaintiffs concede this defeats their claim. 20 Moreover, plaintiffs’ argument that Kondaur was required to repeat the § 2923.5 contact 21 22 requirements when it was assigned the Deed and Note does not appear in Plaintiffs’ complaint, and 23 at the hearing on this motion, counsel for Plaintiffs admitted it was raised for the first time in 24 Plaintiffs’ reply brief. Even if this argument was properly before the Court, however, it is not 25 persuasive. The purpose of § 2923.5 is to provide an opportunity to avoid foreclosure by requiring 26 some communication between the lender and the borrower before the notice of default. Mabry v. 27 28 2 Because this information is of public record, the Court takes judicial notice of it. 9 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 Sup. Ct., 185 Cal. App. 4th 208, 225 (2010). The statute requires that “[a] notice of default filed 2 pursuant to Section 2924 shall include a declaration that the mortgagee, beneficiary, or authorized 3 agent has contacted the borrower . . . .” Cal. Civ. Code § 2923.5. The NOD recorded on March 8, 4 2010 includes the required declaration. Plaintiffs do not contend that the declaration is untrue or 5 6 that they were never contacted regarding their default. The statute does not require that every 7 entity acquiring an interest in the loan repeat § 2923.5 procedures, and Plaintiffs have cited no 8 authority to support this position. Since the NOD complies with the requirements of § 2923.5 9 regarding the declaration, Plaintiffs’ untimely argument is very unlikely to succeed. 10 E. 11 Truth in Lending Act In their complaint, Plaintiffs allege generally that Defendants violated provisions of the 12 13 14 Truth in Lending Act (15 U.S.C. § 1631 et seq., “TILA”), and that this entitles them to rescind the Deed and Note. See Not. of Removal, Dkt. No. 1, Ex. 1 (Compl.) at ¶¶ 30-31. It is well- 15 established that the “absolute limitation” for claims for rescission under TILA is three years from 16 the date of consummation of the transaction or sale of the property, whichever occurs first. 35 17 U.S.C. § 1635(f); King v. California, 784 F.2d 910, 913 (9th Cir. 1986). In this case, the Deed and 18 Note were signed April 23, 2007, but Plaintiffs did not file their complaint in state court until July 19 2, 2010, over two months after the statute of limitations had run. Therefore, Plaintiffs’ claims for 20 21 22 recession under TILA appear to be time-barred. Plaintiffs offered no response to this apparent fatal defect at the hearing on the instant motion.3 F. 23 24 25 26 Balancing As set forth above, the probability of Plaintiffs’ succeeding on any of their claims is extremely low. Thus, the “likely to succeed” factor weighs against an injunction. When the chance of success is very low, courts have refused to grant preliminary injunctive relief to halt a 27 28 3 Defendants’ Motions to Dismiss will be heard on October 7, 2010. 10 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION 1 home foreclosure. Gonzalez v. Wells Fargo Bank, No. C 09-03444 MHP, 2009 U.S. Dist. LEXIS 2 101036, *20-22 (N.D. Cal. Oct. 29, 2009). On the other hand, the Court recognizes that loss of 3 one’s home constitutes irreparable harm, and the irreparable harm factor weighs in favor of an 4 injunction. Saba v. Caplan, No. C 10-02113 SBA, 2010 U.S. Dist. LEXIS 76790, at *13-*14 5 6 (N.D. Cal. July 6, 2010). However, the balance of equities does not favor an injunction. 7 Defendants allege, and Plaintiffs do not dispute, the fact that Plaintiffs have made no payments on 8 the Note since July 2008 and that over $160,000 is due on the Note. Def. Kondaur Opp. to Mot. 9 for TRO at 2. It is not equitable for Plaintiffs to continue to occupy the Property without making 10 11 any mortgage payments for more than two years. Similarly, the public interest would not be served by prohibiting Kondaur from proceeding with the foreclosure sale, as it is entitled to do. 12 13 14 15 IV. CONCLUSION Accordingly, Plaintiffs’ motion for a preliminary injunction is DENIED. IT IS SO ORDERED. 16 Dated: August 20, 2010 _________________________________ LUCY H. KOH United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 11 Case No.: 10-CV-03167-LHK ORDER DENYING PRELIMINARY INJUCTION
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