LAWRENCE K. KARLTON, Senior District Judge.
In his First Amended Complaint, plaintiff Daniel Menan alleges that after he defaulted on his home mortgage, he reached an agreement with defendants to avoid the foreclosure of his home. Defendants promised to rescind the Notice of Default they had filed earlier if, in return, plaintiff timely made all agreed-to "forbearance" payments. Plaintiff alleges that he timely complied with his end of the bargain, or was excused from doing so, but that defendants nevertheless failed to rescind the Notice of Default, and instead had plaintiff's home sold at a foreclosure sale. This lawsuit seeks damages and a rescission of the sale.
Defendants have moved to dismiss the lawsuit and to expunge the lis pendens. For the reasons that follow, both motions will be denied.
In 2005, plaintiff obtained an "interest only" adjustable rate home loan for $1.19 million, from non-party lender First Franklin.
In or before August 2009, plaintiff requested "a repayment arrangement to reinstate" his mortgage loan. See Complaint ¶ 11 & Exh. 2. On or before August 6, 2009, defendant SPS (the agent for defendant U.S. Bank), approved plaintiff's request. See Complaint Exh. 3 (August 6, 2009 SPS's proposed "Forbearance to Modification Agreement" with payment schedule).
Pursuant to the Forbearance Agreement, dated August 6, 2009, plaintiff was required to send his first payment to SPS no later than August 19, 2009, along with a signed copy of the Forbearance Agreement. Complaint ¶¶ 13, 16 & Exhs. 2 & 3 (¶¶ 3(a) & 15).
Complaint Exh. 3 ¶ 2. SPS also agreed that:
Complaint Exh. 3 ¶ 11 (some emphasis in text).
The first payment, due on or before August 19, 2009, was for $49,009.10. Complaint ¶ 16 & Exhs. 2 & 3. Plaintiff made his first payment, for $49,009.10, by wire, on August 7, 2009, one day after the date of the agreement, and twelve days before the deadline. Complaint ¶ 18 & Exh. 6. Nevertheless, on August 13, 2009, the day after SPS notified plaintiff that it had approved his request for a forbearance, SPS refused to accept plaintiff's payment. Complaint ¶ 18 & Exh. 5. SPS instead asserted that plaintiff had to pay the entire amount of arrearage, $194,666.02. Complaint ¶ 18 & Exh. 5.
Plaintiff immediately called SPS to explain that his payment should have been accepted per the August 6, 2009 Forbearance Agreement. Complaint ¶ 19. In response,
Plaintiff then learned that his first payment had been refused and returned. Id. He therefore called SPS again, which advised him that it had now received the signed agreement and that he should re-send his payment. Id. Plaintiff re-sent the payment by wire, and thereupon made all subsequent payments in a timely fashion, as called for in the Forbearance Agreement. Id.
Nevertheless, on April 8, 2010, the Trustee recorded a Notice of Trustee Sale, advising plaintiff that the Trustee would sell plaintiff's home at auction. RfJN Exh. F. The Trustee then sold the property at a foreclosure sale, to the highest bidder. Complaint ¶ 21 & Exh. 4.
Plaintiff then filed this lawsuit asserting the following claims: (1) rescission of Trustee's Deed Upon Sale; (2) breach of contract; (3) wrongful foreclosure; and (4) unlawful business practices in violation of Cal. Bus. & Prof.Code §§ 17200, et seq. Plaintiff also recorded a lis pendens against the property, based upon the pendency of this lawsuit.
A dismissal motion under Fed.R.Civ.P. 12(b)(6) challenges a complaint's compliance with the federal pleading requirements. Under Fed.R.Civ.P. 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The complaint must give the defendant "`fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
To meet this requirement, the complaint must be supported by factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Moreover, this court "must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007).
"While legal conclusions can provide the framework of a complaint," neither legal conclusions nor conclusory statements are themselves sufficient, and such statements are not entitled to a presumption of truth. Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949-50. Iqbal and Twombly therefore prescribe a two step process for evaluation of motions to dismiss. The court first identifies the non-conclusory factual allegations, and then determines whether these allegations, taken as true and construed in the light most favorable to the plaintiff, "plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 664, 129 S.Ct. at 1949-50.
"Plausibility," as it is used in Twombly and Iqbal, does not refer to the likelihood that a pleader will succeed in proving the
Under California law, a notis of lis pendens must be expunged "if the court finds that the pleading on which the notice is based does not contain a real property claim." Cal. Code Civ. Proc. § 405.31.
Plaintiff alleges that defendants breached their "Forbearance to Modification Agreement." See Complaint Exh. 3. Under that agreement: "Once Borrower has made all of the payments required under Section 3, Services will cause the notice of default to be cancelled." Defendant moves to dismiss the rescission claim solely on the ground that plaintiff has failed to allege a breach of the Forbearance Agreement.
The elements of a cause of action for breach of contract are:
Oasis West Realty, LLC v. Goldman, 51 Cal.4th 811, 821, 124 Cal.Rptr.3d 256, 250 P.3d 1115 (2011). Defendants assert that plaintiff did not satisfy even one of the elements of this cause of action. The court however, finds that plaintiff properly alleged all four in his complaint.
Defendants argue that they had no contract with plaintiff. However, they do not deny the existence of a document dated August 6, 2009, and entitled "Forbearance to Modification Agreement," the face of which states that it is an agreement
Defendants argue that plaintiff failed to perform the contract. They argue that plaintiff made his first forbearance payment too early, and that he signed the Agreement too late.
As recounted above, plaintiff alleges the plaintiff and defendants reached an agreement no later than August 6, 2009, the date of the Forbearance Agreement. According to the Agreement, plaintiff was required to make a payment of $49,009.10 no later than August 19, 2009, and to return a signed copy of the Agreement no later than that same date. Complaint ¶ 16. He had no other obligations under the agreement that had to be performed before August 19th.
Plaintiff alleges that he wired his payment for $49,009.10 on August 7, 2009, the day after the date of the Agreement. This payment constituted proper performance of plaintiff's obligation. It was not too early. It was made the day after the agreement came into existence, and prior to the August 19, 2009 deadline.
Defendants assert that the agreement came into existence on August 12, 2009, the date they sent plaintiff a letter stating his request for "a repayment arrangement" was approved, and sent him the Forbearance Agreement (dated August 6, 2009). Complaint Exh. 2. However, nothing in that letter states that the effective date of the Forbearance Agreement is the date of the letter, or indeed that it was anything other than August 6, 2009, the date stated in the Agreement. Indeed, defendants' letter states that upon signing the Agreement, which was sent with the August 12, 2009 letter, plaintiff agreed to its terms and conditions. Complaint Exh. 2. One of those terms was the date of the Agreement, namely, August 6, 2009.
The complaint further alleges that plaintiff made all subsequent forbearance payments in a timely fashion. Complaint ¶ 19.
By August 7, 2009 then, plaintiff had carried out the first of his obligations. He still had until August 19, 2009 to do the second, namely to sign and return the Agreement to defendants. On August 13, 2009 however, SPS advised plaintiff that it was rejecting his $49,009.10 payment, and it did so unconditionally. Complaint Exh. 5. At this point, SPS was in breach of the Forbearance Agreement. This breach excused plaintiff's obligation to sign and return the agreement by August 19th. Indeed, it would have made no sense for plaintiff to sign and return an agreement defendants had already breached.
Instead of standing on his rights and demanding that defendant withdraw the notice of cancellation at that point however, plaintiff called SPS, and advised it of
Accordingly, for purposes of this dismissal motion, plaintiff fully and timely complied with all of his obligations under the Forbearance Agreement.
As discussed above, plaintiff alleges that he fully performed under the Forbearance Agreement, or was excused from timely performance by defendant's breach. Defendant then breached the agreement by failing to "cause the notice of default to be cancelled," as it specifically promised to do in the Forbearance Agreement. Complaint ¶ 19.
This breach is critical to plaintiff, since as a direct result, the Trustee was able to rely upon the still-extant Notice of Default to sell the property at auction. See RfJN Exh. F (Notice of Trustee's Sale). Had the Notice of Default been cancelled, as promised, it appears that the Trustee could not have conducted the foreclosure sale. See Cal. Civ.Code § 2924(a)(1) (recording of notice of default is required before the trustee's power of sale can be exercised).
As the court has found, plaintiff's complaint sufficiently alleges that plaintiff made all the forbearance payments in an attempt to save his home. These forbearance payments however, apparently did not cure the delinquency in his loan payments. When defendants sold plaintiff's home at auction, therefore, those payments were simply lost, as they were paid over to defendant in exchange for a broken promise to cancel the Notice of Default. Although plaintiff does not specifically allege "damages," the court infers from the complaint that these payments were among his damages.
Accordingly, the court finds that plaintiff has sufficiently alleged breach of the Forbearance Agreement. Defendant's motion to dismiss the rescission claim for failure to allege a breach of contract will therefore be denied.
The title of plaintiff's second cause of action indicates that he alleges breach of contract for defendant's failure to modify his loan terms. Defendant correctly points out that there is no such contract language nor any other allegation of any such agreement. However, the substantive allegations of this breach claim make clear that plaintiff is suing for defendant's failure to "consider" plaintiff for a loan modification, and to do so in good faith.
Defendants' obligation to consider plaintiff for a loan modification arises from the Forbearance Agreement, discussed above. In that Agreement defendant SPS
Complaint Exh. 3 ¶ 2.2. As discussed above, plaintiff did timely make his forbearance payments, thus triggering defendant's contractual obligation to consider plaintiff for modified monthly payments. The complaint goes on to allege that defendant breached this obligation by failing to consider reviewing him for the modification, and to do so in good faith.
Plaintiff's allegations in this regard are: (1) as discussed above, defendant breached that part of this same agreement in which it promised to rescind the notice of default;
Accordingly, the motion to dismiss the second claim will be denied.
"California recognizes a cause of action for wrongful foreclosure under equitable principles." Barroso v. Ocwen Loan Servicing, LLC, 208 Cal.App.4th 1001, 1016, 146 Cal.Rptr.3d 90 (2nd Dist.2012). Plaintiff's theory here is that the foreclosure sale should not have taken place at all, since defendant was contractually obligated to cancel the Notice of Default.
Defendants argue that plaintiff's claim for wrongful foreclosure must be dismissed solely on the ground that plaintiff was required to tender the full amount of his arrearage, which he has not done. In support, defendant cites Sierra-Bay Fed. Land Bank Assn. v. Superior Court, 227 Cal.App.3d 318, 337, 277 Cal.Rptr. 753 (3rd Dist.1991).
Defendant also cites Arnolds Management Corp. v. Eischen, 158 Cal.App.3d 575, 205 Cal.Rptr. 15 (2nd Dist.1984) for the proposition that a full tender of the arrearage is needed "to set aside a trustee's sale for irregularities in sale notice or procedure." Id. at 578, 205 Cal.Rptr. 15. In Arnolds, there was no question about whether the trustee's sale should have taken place at all — the key allegation of this lawsuit. The trustee in Arnolds told plaintiff that the trustee's sale was to take place on July 28, 192, when in fact, it was scheduled for May 27, 1982, and it took place on the May date. The plaintiff's lawsuit was based upon this irregularity of notice. It was in this context that the court held that "an action to set aside a trustee's sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security." Id. at 578, 205 Cal.Rptr. 15.
Defendants also rely upon Abdallah v. United Savings Bank, 43 Cal.App.4th 1101, 1109, 51 Cal.Rptr.2d 286 (1st Dist. 1996), cert. denied, 519 U.S. 1081, 117 S.Ct. 746, 136 L.Ed.2d 684 (1997), which similarly addresses the tender requirement in the context of an irregularity in notice procedure, and a failure to postpone the sale to obtain a better price. It does not address a claim — as pressed here — that the foreclosure
Indeed, none of the cases defendants rely upon require tender when there is a challenge to the trustee's right to conduct the sale at all. Rather, they require tender when there is an alleged irregularity in the notice or procedure of the sale.
Here, plaintiff does not base his claim on an "irregularity of notice or procedure" in the trustee's sale. Rather, he bases his claim on his assertion that the trustee had no right to conduct the sale at all, since (1) defendants were contractually obligated not to permit the sale by their trustee, and (2) defendants were contractually obligated to withdraw the Notice of Default, the existence of which was the legal predicate of the trustee's sale.
The law does not require plaintiff to tender the purchase price to a trustee who has no right to sell the property at all. In Bank of America, N.A. v. La Jolla Group II, 129 Cal.App.4th 706, 28 Cal.Rptr.3d 825 (5th Dist.2005), for example, the trustee had no right to conduct the foreclosure sale because the homeowner had fully cured the default. The lenders simply forgot to tell the trustee that the default had been cured. There is not even a mention of a tender requirement in the case. Such a requirement would have made no sense, since the trustee had no right to conduct the sale at all.
In this case, it may be that plaintiff has not cured the default.
Accordingly, defendants' assertion that plaintiff has not made a tender of the full arrearage is not a basis for dismissal of the wrongful foreclosure claim.
Defendant argues that the unlawful business practices act fails because it is dependent upon the other three claims of the complaint, which, in its view, are meritless. Since those claims are not meritless, and will not be dismissed, this claim also will not be dismissed.
Defendant also asserts that plaintiff was in error to rely on the prior allegations of the complaint in making the unfair business practices claim. The court disagrees. Plaintiff's practice is fully in accordance with the "short and plain" statement requirement of Fed.R.Civ.P. 8(a). Plaintiff is not required to re-assert and re-allege all the prior allegations, and indeed was right not to do so. Those prior allegations make clear what wrong was done to plaintiff and the harm he suffered. Defendant's assertion that plaintiff failed to allege loss of any money or property is simply wrong, as plaintiff has clearly alleged the loss of his home arising from defendants' breach of their contractual obligation to rescind the notice of default, and to consider him (in good faith), for a loan modification.
Defendants move to expunge the lis pendens which plaintiff filed against the property. Defendants' sole basis is that the lawsuit, which is the basis of the lis pendens, is without merit. As discussed above however, the lawsuit, which contains a proper real estate claim for wrongful foreclosure, is meritorious, or at least, it is not dismissible at this point. Accordingly, the motion to expunge will be denied.
For the reasons set forth above:
1. Defendant's motion to dismiss (ECF No. 12), is
2. Defendant's motion to expunge the lis pendens (ECF No. 19), is
IT IS SO ORDERED.
However, the complaint refers to the loan document, even though it does not attach it as an exhibit (as plaintiff could have, under Rule 10(c)). Defendants have proffered the document as the loan document referred to in the complaint, and plaintiff offers no objection. In this circumstance, the "incorporation by reference" doctrine allows the court to consider Exh. A on this Rule 12(b)(6) motion without converting the motion into one for summary judgment. Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1160 (9th Cir. 2012) ("courts may take into account `documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading,'" and further, the court "`may treat such a document as part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6)'"), quoting Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir.2005), and U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003). Accordingly, the court will consider Exhibit A of defendant's Request for Judicial Notice under the "incorporation by reference" doctrine.
See also, Chavez v. Recontrust Co., 2008 WL 5210893 at *6 (E.D.Cal.2008) (Wanger, J.), in which the court denied the request to set aside a trustee's sale stating, in toto: "`[T]he law is long-established that a trustor or his successor must tender the obligation in full as a prerequisite to challenge of the foreclosure sale,'" quoting, United States Cold Storage v. Great Western Savings & Loan Assn., 165 Cal.App.3d 1214, 1222, 212 Cal.Rptr. 232 (1985). Since Chavez relied entirely on the quoted statement from a state case, Cold Storage, this court looks to the state case for guidance. Cold Storage, as with all the other cases, addresses tender in the context of allegedly defective notice, stating: "It would be futile to set aside a foreclosure sale on the technical ground that notice was improper, if the party making the challenge did not first make full tender and thereby establish his ability to purchase the property." Cold Storage, 165 Cal.App.3d at 1225, 212 Cal.Rptr. 232. To the degree Chavez may be read to require a full tender to a trustee who had no right to conduct the trustee's sale in the first place, this court would respectfully decline to follow it.
