LUCY H. KOH, District Judge.
Ocwen Loan Servicing, LLC, ("Ocwen") and TD Service Financial Corporation ("TD") (collectively, "Defendants") move to dismiss Plaintiff Mark Bingham's Complaint. ECF No. 10. Plaintiff opposes the motion, ECF No. 13, and Defendant has filed a reply, ECF No. 14. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter suitable for decision without oral argument and accordingly VACATES the hearing on this motion set for May 22, 2014, at 1:30 p.m. The Case Management Conference scheduled for May 22, 2014 remains as set. Having considered the submissions of the parties and the relevant law, the Court for the reasons stated below DENIES Defendants' motion to dismiss.
On or about December 8, 2006, Plaintiff received a $500,000 loan from American Home Mortgage ("AHM") secured by a Deed of Trust encumbering the real property located at 185 Aquila Way, Boulder Creek, CA 95006 ("Subject Property"). See Complaint ¶ 12; Request for Judicial Notice ("RJN") Ex. 1, at 2. Plaintiff failed to make payments under the terms of the Note and Deed of Trust, and on August 21, 2012, with the loan at $47,415.36 in arrears, foreclosure proceedings were initiated with the recordation of a Notice of Default ("NOD"). RJN Ex. 2, at 1-2. The following day, August 22, 2012, the Deed of Trust was assigned and all beneficial interest under the Deed was transferred to Deutsche Bank National Trust Company ("Deutsche Bank"), as Trustee for American Mortgage Assets Trust 2007-2, Mortgage-Backed Pass-Through Certificates Series 2007-2. RJN Ex. 3, at 1. Plaintiff alleges that in approximately February 2013, Defendant Ocwen acquired Plaintiff's loan and the Deed of Trust to the Subject Property. Complaint ¶ 12.
In February 2013, Plaintiff was notified that Ocwen would be Plaintiff's loan servicer as of March 1, 2013. Id. ¶ 13. On May 17, 2013, a Substitution of Trustee was recorded wherein Homeward Residential, Inc., acting as attorney-in-fact for Deutsche Bank, named Power Default Services, Inc. as the substitute trustee under the Deed of Trust. RJN Ex. 4, at 1-2. Sometime in May of 2013, Plaintiff received notice that Ocwen had scheduled a trustee's sale to take place on June 12, 2013. Id.; RJN Ex. 5, at 2.
Plaintiff alleges that he visited Ocwen's website in May 2013. Complaint ¶ 14. Ocwen solicited loan modifications on its website with a link ("Click here and you can start a loan mod") that directed users to forms which the user could fill out and fax to Ocwen to apply for a loan modification. Id. Plaintiff filled out and printed the forms, and attempted to fax them to Ocwen. Id. Despite Plaintiff's repeated attempts, the fax contact listed on the website did not work. Id.
On approximately June 5, 2013, Plaintiff again attempted to fax the documents, but after his attempt once again failed, Plaintiff scanned and emailed the documents to Mod@Ocwen.com. Id. ¶ 15. Plaintiff thereafter received no requests for documents from Ocwen, and seven days later on June 12, 2013, Plaintiff's property sold at a trustee's sale conducted by Defendant TD, acting as trustee for Ocwen. Id. Plaintiff alleges that Ocwen reacquired the property at the sale. Id. No trustee's deed upon sale was or has been recorded. Defendants' Motion to Dismiss ("Mot.") at 7, ECF No. 10.
On or about June 14, 2013, Plaintiff received a letter dated June 11, 2013, informing him that Ocwen had received Plaintiff's application for loan modification, but that Ocwen had denied the application because a foreclosure sale date was scheduled within seven days of Ocwen's receipt of the application. Id. ¶ 16.
Plaintiff filed his Complaint against Defendants in Santa Cruz County Superior Court on July 17, 2013 ("Complaint"), and Defendants removed the case to this Court on August 30, 2013. ECF No. 1. After the parties declined to proceed before a Magistrate Judge, the case was reassigned to the undersigned judge on September 17, 2013. ECF No. 8. After reassignment, Defendants moved to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. ECF No. 10.
Defendants accompanied their motion to dismiss with a request that the Court take judicial notice of the following documents relating to the Subject Property: (1) a Deed of Trust recorded on December 16, 2006; (2) a Notice of Default and Election to Sell Under Deed of Trust recorded on August 21, 2012; (3) an Assignment of Deed of Trust recorded on August 22, 2012; (4) a Substitution of Trustee recorded on May 17, 2013; and (5) a Notice of Trustee's Sale recorded on May 17, 2013. ECF No. 11. The Court GRANTS Defendants' unopposed request, and has taken notice of the attached undisputed public documents, on which both parties rely in their briefs. See Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 866 n.1 (9th Cir. 2004) (granting judicial notice over "undisputed matters of public record"); see also Fed. R. Evid. 201(d) (providing that upon request a court shall take notice of adjudicative facts if such facts "are not subject to reasonable dispute").
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss an action for failure to allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citation omitted). For purposes of ruling on a Rule 12(b)(6) motion, the Court "accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving party." Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).
However, a court need not accept as true allegations contradicted by judicially noticeable facts, Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000), and a "court may look beyond the plaintiff's complaint to matters of public record" without converting the Rule 12(b)(6) motion into one for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995). Nor is a court required to "`assume the truth of legal conclusions merely because they are cast in the form of factual allegations.'" Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per curiam) (quoting W. Min. Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)). Mere "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004); accord Iqbal, 556 U.S. at 678. Furthermore, "a plaintiff may plead [him]self out of court" if he "plead[s] facts which establish that he cannot prevail on his . . . claim." Weisbuch v. Cnty. of L.A., 119 F.3d 778, 783 n.1 (9th Cir. 1997) (internal quotation marks and citation omitted).
Plaintiff's Complaint alleges that Defendants violated Section 2923.6 of the California Homeowner Bill of Rights ("HBOR") by foreclosing on Plaintiff's home while Plaintiff was eligible for and sought a loan modification. Complaint ¶¶ 18-23; Cal. Civ. Code § 2923.6.
Defendants move to dismiss the Complaint on several grounds. First, Defendants contend that Section 2923.6 does not provide a private right of action, and therefore that Plaintiff has failed to state a claim upon which relief may be granted. Mot. at 6. Second, Defendants assert that because Ocwen did not offer loan modifications, Section 2923.6 is inapplicable. Id. Third, Defendants argue that a trustee's deed upon sale must be recorded to recover damages under Section 2924.12(b), and that because no such deed has been recorded, Plaintiff's claim for damages fails. Id. at 7. Finally, Defendants argue that to set aside or cancel a foreclosure sale, Plaintiff must tender or offer to tender a sum sufficient to cure default, and that because Plaintiff has failed do so, the Complaint fails to state a cause of action. Mot. at 3-5. The Court rejects each of Defendants' arguments. Specifically, for the reasons stated below the Court finds that Section 2924.12 provides a private right of action for violation of Section 2923.6, that Plaintiff has sufficiently alleged a claim for violation of Section 2923.6 and 2924.12, and that Plaintiff's claim for damages is sufficient to survive a motion to dismiss. The Court also declines to dismiss the Complaint for failure to tender. Accordingly, the Court DENIES Defendants' motion to dismiss. Before turning to Defendants' arguments in their motion to dismiss, the Court briefly discusses the relevant provisions of the HBOR.
California's HBOR, which took effect January 1, 2013, reformed aspects of the state's nonjudicial foreclosure process by amending the California Civil Code to prohibit deceptive and abusive home foreclosure practices. See Flores v. Nationstar Mortgage LLC, No. 13-3898, 2014 WL 304766, at *3 (C.D. Cal. Jan. 6, 2014); Singh v. Bank of America, N.A., No. 13-729, 2013 WL 1858436, at *2 (E.D. Cal. May 2, 2013). Before these recent amendments, the statute at issue in this case, Section 2923.6, contained only the first two current subsections, (a) and (b), which "merely express the hope that lenders will offer loan modifications on certain terms." Mabry v. Superior Court, 185 Cal.App.4th 208, 222 (2010). The HBOR added to these preexisting aspirational provisions several express prohibitions in subsections (c) through (k). See Vasquez v. Bank of Am., N.A., No. 13-2902, 2013 WL 6001924, at *7 (N.D. Cal. Nov. 12, 2013) (explaining the effects of the HBOR on Section 2923.6).
The relevant subsection here, 2923.6(c), now provides that "[i]f a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower's mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee's sale, while the complete first lien loan modification application is pending." After a complete loan modification application has been submitted, a servicer "shall not record a notice of default or notice of sale or conduct a trustee's sale until any of the following occurs: (1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired; (2) The borrower does not accept an offered first lien loan modification within 14 days of the offer; (3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower's obligations under, the first lien loan modification." Id. Subsection (d) states that "the borrower shall have at least 30 days from the date of the written denial to appeal the denial and to provide evidence that the mortgage servicer's determination was in error." Id.
The HBOR also added Section 2924.12, which expressly provides a private cause action for violations of the new provisions, including 2923.6. See § 2424.12. Available remedies under Section 2924.12 depend upon whether a trustee's deed has or has not been recorded:
§ 2924.12.
Here, Plaintiff alleges he submitted an application for a loan modification on June 5, 2013, and that despite his pending loan modification application, Defendants continued with nonjudicial foreclosure proceedings. Complaint ¶ 15. On June 14, 2013, two days after his home was sold at a foreclosure auction, Plaintiff received a written denial of his application for a loan modification, dated June 11, 2013. Plaintiff contends that Defendants were prohibited by 2923.6 from foreclosing upon and selling Plaintiff's property until Defendants had issued a written determination regarding Plaintiff's application for loan modification and the 30-day statutory appeals period had expired.
In their motion to dismiss, Defendants contend that "Section 2923.6 does not provide a private right of action." Mot. at 7. Defendants are incorrect, and the authorities to which Defendants cite are inapposite. The previous version of Section 2923.6 provided no private right of action, and the cases cited by Defendants interpret this prior version of the law. Id. at 6-7 (citing Pitre v. Wells Fargo Bank, N.A. Mortgage Servicer, 2013 WL 2156315, at *3 (N.D. Cal. May 17, 2103) (applying pre-HBOR Section 2923.6 to acts which occurred prior to the effective date of the new provisions, and finding no private right of action under the former statute)).
Defendants also contend that because "Ocwen did not offer [loan] modifications less than seven days before the foreclosure sale[,]" Section 2923.6(c) is inapplicable. Mot. at 6. Defendants base this argument on the language of Section 2923.6(c)(1), which provides that "[i]f a borrower submits a complete application for a first lien modification offered by, or through, the borrower's mortgage servicer[,]" no notice of default or notice of sale shall be recorded, or trustee's sale conducted, while the loan modification application is pending. § 2923.6(c)(1) (emphasis added). Defendants' argument appears to be that no loan modification was "offered by" Ocwen, so Section 2923.6(c) does not apply. Mot. at 6. The assertion that Ocwen did not offer loan modifications is contradicted by Plaintiff's allegations that he: (1) followed a link on Ocwen's website titled "Click here and you can start a loan mod"; and (2) filled out the loan modification application found through that link. Complaint ¶ 14. Defendants' assertions to the contrary are unavailing on a motion to dismiss, which requires the Court to consider only the well-pleaded allegations in the Complaint. Construing such allegations in Plaintiff's favor, the Court finds Plaintiff has sufficiently stated a claim for relief under Section 2923.6.
Plaintiff seeks both injunctive and monetary relief under Section 2924.12. Complaint at 6. As discussed above, to the extent that Plaintiff seeks to set aside the completed foreclosure sale of the Subject Property, Plaintiff's claim for injunctive relief amounts to a common law action for wrongful foreclosure as well. Defendants move to dismiss the action for want of available relief. Mot. at 7. Defendants challenge Plaintiff's statutory claims on the ground that no trustee's deed upon sale has been recorded. Id. Under 2924.12(a) injunctive relief is available to enjoin violation of, inter alia, 2923.6, before a trustee's deed of sale is recorded, and following the recordation of such a deed a plaintiff may seek post-sale damages under 2924.12(b). § 2924.12. Because here the Subject Property was sold at a foreclosure sale, injunctive relief under the statute may no longer be available to Plaintiff, despite the fact that no trustee's deed upon sale has been recorded. Defendants also argue that no injunctive relief is available under 2924.12(a) because Plaintiff has not tendered or offered to tender a sum sufficient to cure default. Mot. at 3. As for monetary damages, Defendants contend that because they did not record a deed upon sale, Plaintiff may not seek damages under Section 2924.12(b). Id. at 7.
For the reasons set forth below, the Court denies Defendants' motion to dismiss. The Court begins by discussing statutory remedies and then turns to common law remedies.
Section 2924.12 provides actions for homeowners to seek both damages and injunctive relief for violations of Section 2923.6. As discussed above, if a trustee's deed upon sale has been recorded, Section 2924.12(b) provides an action for economic and statutory damages. If a trustee's deed upon sale has not been recorded, Section 2924.12(a) authorizes injunctive relief.
Defendants move to dismiss on the ground that neither statutory remedy is available to Plaintiff. Mot. at 3, 7. First, Defendants contend that Plaintiff may not seek injunctive relief because Plaintiff failed to tender a sum sufficient to cure default. Id. at 3. Second, Defendants assert in their motion to dismiss that because Defendants have not yet recorded a trustee's deed upon sale, Plaintiff cannot recover damages under Section 2924.12(b). Id. at 7. The Court rejects both arguments for the reasons set forth below and therefore denies the motion to dismiss on the basis of lack of statutory remedies.
First, Section 2924.12(a) provides that if "a trustee's deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation of Section . . . 2923.6. . . ." § 2924.12(a)(1); see also § 2924.12(a)(2) (providing that any such injunction shall remain in place until any violations have been remedied). Because Section 2924.12(a) contains no tender requirement, Plaintiff need not tender insofar as his prayer for injunctive relief is based upon this statute. See Mojanoff v. Select Portfolio Servicing Inc., No. LC100052 (Cal. Super. Ct. May 28, 2013) (finding that "the California Home Owner Bill of Rights . . . imposes no tender requirement."). Here, no trustee's deed upon sale has been recorded, and thus Plaintiff may seek injunctive relief under Section 2924.12(a), regardless of tender.
Second, Plaintiff seeks relief under 2924.12(b), which provides an action to recover monetary damages for violation of 2923.6 and related subsections once a trustee's deed upon sale has been recorded. Complaint at 6.
A recent decision from the Central District of California involving the Defendants in this case suggests that despite the literal language of Section 2924.12(b), failure to record a trustee's deed upon sale may not necessarily preclude recovery of monetary damages. See Copeland v. Ocwen Loan Servicing, LLC, No. 13-5708, 2014 WL 304976, at *5 (C.D. Cal. Jan. 3, 2014). In Copeland, Ocwen argued that because Ocwen served notice of sale on the plaintiff but did not actually record the notice, Ocwen had not violated Section 2923.6. Id. Judge Reess observed that "[b]y simply not recording any instruments, Defendants seem to believe they can circumvent the ban on dual tracking." Id. Judge Reess denied the motion to dismiss, finding that to bar recovery in such a case "would be a perversion of the spirit of the HBOR, which seeks to prohibit foreclosure while a borrower is simultaneously being considered for loan modifications." Id.
Because under the Complaint as plead, Plaintiff is entitled to some remedy, the Court denies Defendants motion to dismiss Plaintiff's statutory claims on the basis of lack of statutory remedies.
Defendants also contend Plaintiff's action amounts to an action in equity for wrongful foreclosure, and move to dismiss the Complaint for failure to tender or offer to tender a sum sufficient to cure default. Mot. at 3-5. Defendants argue that absent full tender or an offer to tender, Plaintiff is barred from seeking injunctive relief. Id. The Court declines to dismiss the Complaint for failure to tender because the tender rule may be excused where it would be inequitable to require tender, and the Court finds that the equities cannot be resolved on the pleadings alone.
In California, a foreclosure sale may be set aside by bringing a common law action in equity for wrongful foreclosure, "a proper claim for [which] is comprised of the following elements: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering." Rockridge Trust, 2014 WL 688124, at *18; Lona, 202 Cal. App. 4th at 103 ("After a nonjudicial foreclosure sale has been completed, the traditional method by which the sale is challenged is a suit in equity to set aside the trustee's sale.").
The tender rule thus provides that an equitable wrongful foreclosure "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." Arnolds Mgmt. Corp. v. Eischen, 158 Cal.App.3d 575, 578, 205 Cal.Rptr. 15 (1984); see also Karlsen v. Am. Sav. & Loan Assn., 15 Cal.App.3d 112, 117, 92 Cal.Rptr. 851 (1971) ("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"). "This rule is rooted in equity and premised on the notion that 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." Alvarez v. Wells Fargo Bank, N.A., No. 12-9661, 2013 WL 425097, at *4 (C.D. Cal. Jan. 31, 2013) (internal quotation marks and citation omitted).
But the tender rule is not absolute, and is not without exceptions. See Lona, 202 Cal. App. 4th at 112 (listing four well-established exceptions to the tender rule, including excusing tender where it would be inequitable to require it). California courts have long recognized that although "[t]he rules which govern tenders are strict and are strictly applied," Nguyen v. Calhoun, 105 Cal.App.4th 428, 439 (2003), "viewing the question generally, it is certainly not the law that an offer to pay the debt must be made, where it would be inequitable to exact such offer of the party complaining of the sale." Humboldt Sav. Bank v. McCleverty, 161 Cal. 285, 291 (1911); see also Onofrio v. Rice, 55 Cal.App.4th 413, 424, (Cal. Ct. App. 1997) ("Tender may not be required where it would be inequitable to do so.").
Because tender is an equitable concept, courts have held that "[w]hether Plaintiffs are required to tender is a matter of discretion left up to the Court," and that "failure to allege tender is not decisive at [the pleading] stage." Storm v. Am.'s Servicing Co., No. 0911206, 2009 WL 3756629, at *6 (S.D. Cal. Nov. 6, 2009); accord Nguyen v. JP Morgan Chase Bank N.A., No. 12-4183, 2013 WL 2146606, at *6 (N.D. Cal. May 15, 2013) (exercising discretion to decline to apply tender at pleadings state). But see Wilson v. Household Fin. Corp., No. 12-1413, 2013 WL 1310589, at *8 (E.D. Cal. Mar. 28, 2013) (holding that tender is not a matter of discretion, and that "when a foreclosure has occurred, a party must tender the amount of the indebtedness to challenge a voidable sale for irregularities in the sale procedure"). In Nguyen v. JP Morgan Chase, noting that "[t]he tender element of wrongful foreclosure is an equitable concept," Judge Grewal "decline[d] to apply the tender rule at [the] pleading stage without an `opportunity to undertake a more informed analysis of the equities.'" 2013 WL 2146606, at *6 (quoting Tamburri v. Suntrust Mortgage, Inc., No. 11-2899, 2011 WL 6294472, at *5 (N.D. Cal. Dec. 15, 2011)).
Here, the Court finds that further factual development is needed to enable the Court to adequately assess the equities. The Court notes that even at this stage, there are two factors that suggest that excusing tender would be appropriate in this case. First, it remains unclear at this point in the litigation whether Plaintiff is entitled to relief under the statute, either in the form of monetary remedies under Section 2924.12(b), or injunctive relief under 2924.12(a). See supra Part III.D. If Defendants' failure to record a trustee's deed upon sale precludes Plaintiff from seeking monetary damages, the only other remedy available to Plaintiff would be injunctive relief. See § 2924.12(a), (b). However, if, as Defendants contend, injunctive relief under 2924.12(a) is limited to pre-sale postponement of foreclosure proceedings, then Plaintiff's only available remedy would be injunctive relief at common law, because the statutory injunctive relief would have no force where, as here, the sale has already occurred. In this circumstance, requiring tender for injunctive relief at common law could effectively leave Plaintiff with no remedy whatsoever for Defendants' violation of 2923.6, which the Court likely would be inclined to view as sufficiently inequitable to excuse tender.
Second, the Court notes that in cases where monetary damages are unavailable due to a defendant's failure to record a trustee's deed upon sale, requiring full tender would render the mandatory language in Section 2923.6 meaningless, and if no trustee's deed upon sale is ever recorded, leave homeowners with no remedy at all. Lenders could simply ignore the statute and foreclose upon homeowners who appear unable to tender the full amount of the debt for which the property was security while a loan modification application is still pending. See § 2923.6(c) (a servicer "shall not record a notice of default or notice of sale, or conduct a trustee's sale, while the complete first lien loan modification application is pending"); see also § 2924.12(b) ("After a trustee's deed upon sale has been recorded [a servicer] shall be liable to a borrower for actual economic damages.") (emphasis added). The end result is that by refusing to record a deed upon sale, lenders could effectively immunize themselves from liability under 2924.12. In such a case, with no available statutory remedy, plaintiffs will be left with the option of pursuing an action at common law for wrongful foreclosure. However, because Section 2923.6 and related provisions provide rights for homeowners who are in danger of foreclosure, it likely will often be the case that for plaintiffs bringing such actions, tender will be infeasible, if not impossible. To require tender in such cases would leave plaintiffs with no recourse for clear statutory violations.
For the foregoing reasons, the Court declines to dismiss the Complaint on the basis of failure to allege tender. If after further factual development the Court determines that Plaintiff must tender to recover in equity, the Court has the discretion to condition any eventual rescission of the foreclosure sale upon tender of the unpaid debt. See Cal. Civ. Code § 1692 ("If in an action or proceeding a party seeks relief based upon rescission, the court may require the party to whom such relief is granted to make any compensation to the other which justice may require and may otherwise in its judgment adjust the equities between the parties."). In other words, should Plaintiff eventually prevail on his common law claim for wrongful foreclosure, "the court may make a tender of restoration a condition of its judgment" setting aside the foreclosure sale. § 1693.
For the foregoing reasons, the Court DENIES Defendants' motion to dismiss. The Court finds that Section 2924.12 authorizes a private right of action to enforce violations of 2923.6, and that the Complaint states a claim for relief under these two statutes. The Court also declines to dismiss the Complaint for failure to tender, finding further factual development is needed to determine the equities.
