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MINUTES on Hearing of Demurrer on 4th Complaint (4AC)- prior the 5th Amended ComplaintSUPERIOR COURT OF CALIFORNIA, MINUTE ORDER TIME: 12:00:00 PM [X] Amended on 09/29/2020 JUDICIAL OFFICER PRESIDING: David Brown COUNTY OF SACRAMENTO GORDON D SCHABER COURTHOUSE DATE: 09/29/2020 DEPT: 53 CLERK: E. Brown REPORTER/ERM: BAILIFF/COURT ATTENDANT: CASE NO: 34-2014-00160873-CU-OR-GDS CASE INIT.DATE: 03/27/2014 CASE TITLE: Potocki vs. Wells Fargo Bank NA CASE CATEGORY: Civil - Unlimited EVENT TYPE: Hearing on Demurrer - Civil Law and Motion - Demurrer/JOP STOLO CASE TITLE: Potocki vs. Wells Fargo Bank NA CASE NO: 34-2014-00160873-CU-OR-GDS 2005-AR1 (collectively, "Defendants") demur to Plaintiffs Thaddeus J. Potocki and Kelly R. Davenport's (collectively, "Plaintiffs") fourth amended complaint ("4AC"). The demurrer is ruled on as follows.Defendants' request for judicial notice is granted.
The Court does not accept the truth of any facts within the judicially noticed documents except to the extent such facts are beyond reasonable dispute.
Defendants demur to each cause of action in the 4AC on the grounds that they fail to state facts sufficient to constitute a cause of action:
Factual BackgroundPlaintiffs' 4AC alleges the following: Plaintiffs Thaddeus J. Potocki and Kelly R. Davenport (collectively, "Plaintiffs") purchased the subject property in 2004. (4AC ¶ 13; Defendants' RJN, Exh. A.) Plaintiffs fell several months behind on their mortgage on the subject property in early 2009. Plaintiffs contacted Defendant Wells Fargo and were offered a modification in exchange for their agreement to make three trial payments in the amount of $1,633.53 beginning in September 2009. (Id. ¶ 14.) On September 11, 2009, Plaintiffs made their first installment payment in the trial payment plan; the next two payments were made on September 30, 2009, and November 3, 2009. Plaintiffs made payments totaling $4,900.49. All payments were accepted by Wells Fargo. (Id. ¶ 15.) Plaintiffs were not provided the loan modification paperwork as promised. On February 4, 2010, a notice of default ("NOD") was recorded against the subject property. (See Defendants' RJN, Exh. B.) The NOD was filed by First American and believed to be filed on behalf of US Bank. (Id. ¶ 16.) A substitution of trustee was recorded on April 9, 2010, designating First American LoanStar Trustee Services LLC ("First American") as the new trustee. (Defendants' RJN, Exh. C.) An Assignment of the deed of trust to "US Bank National Association, as Trustee for WFASC 2005-AR1" ("ADOT") was recorded on May 4, 2020. (Id., Exh. D.) First American noticed a trustee's sale for June 1, 2010 in a notice of trustee's sale on May 11, 2010 ("NOTS #1"). (Id., Exh. E.) On September 13, 2010, Plaintiffs filed a lawsuit against Wells Fargo alleging causes of action related to the alleged wrongful foreclosure. The case was pending for nearly four years and was dismissed without prejudice by Plaintiffs on February 7, 2014. (Id. ¶ 17.) First American re-noticed the trustee's sale for June 27, 2011 in a notice of
trustee's sale recorded on June 3, 2011 ("NOTS #2"). (Defendants'
RJN, Exh. F.) The Court is familiar with the action. Plaintiffs filed their complaint in the instant litigation on March 27, 2014. It has undergone various iterations, and the pleading has been to the Third District Court of Appeal and back. (See Potocki v. Wells Fargo Bank, N.A., (2019) 38 Cal. App. 5th 566.) On or about December 8, 2014, Plaintiffs submitted a completed loan
modification application along with supporting documents requested by Wells
Fargo. After several months, Plaintiffs were reviewed for two separate
modifications. The first was a modification under the Making Home Affordable
Program ("HAMP"); the second was another Trial Payment
Plan ("TPP"). (Id. ¶ 19.) Also on February 3, 2015, Plaintiffs received a separate letter from Wells
Fargo regarding the TPP review. (Id. ¶ 21.)
Plaintiffs appealed both denials and the denials were affirmed. (Id. ¶ 23.) Plaintiffs allege the contract according to the modify according to the trial payment plan was effectively repudiated by Wells Fargo by way of its March 11, 2014 NTS. (Id. ¶ 24.) Plaintiffs claim the recording of the NTS put Plaintiffs on notice for the first time that Wells Fargo had no intentions of allowing a modification to the mortgage. (Id. ¶ 25.) Defendants previously successfully demurred to an earlier version of
Plaintiffs' complaint. As noted, Plaintiffs appealed to the Third District Court
of Appeal. During the pendency of the appeal, First American again re-noticed
the trustee's sale for June 23, 2015, in a notice of trustee's sale recorded on
June 1, 2015 ("NOTS #3"). (Defendants' RJN, Exh. H.) Plaintiffs contend that they have suffered severe stress and were subjected to multiple trespassers on the subject property, constant harassment and visitation by realtors and others as the subject property was listed for foreclosure sale. (Id. ¶ 28.) Plaintiffs contend the subject property was foreclosed on in violation of
California law, and they incurred thousands in late fees, delinquency charges,
and foreclosure fees charged by Wells Fargo, US Bank, and First American. Plaintiffs claim they were "fully capable" of paying the mortgage if the payment could have been modified and the arrearages were worked out. (Id. ¶ 30.) Plaintiffs contend Defendants' conduct deprived Plaintiffs of resolving the default prior to sustaining damages, and had Wells Fargo and US Bank "fairly and carefully reviewed them for the modification," Plaintiffs would have been approved and would not have suffered the alleged damages. Plaintiffs claim that, at a minimum, they would have been able to pursue other viable foreclosure alternatives such as short sale, equity sale, bankruptcy, etc. (Id. ¶ 31.) Legal StandardThe function of a demurrer or motion to strike is to test the legal sufficiency of the pleading it challenges by raising questions of law.
A demurrer "tests the pleadings alone and not the evidence or other extrinsic matters."
The purpose of a demurrer is to test the legal sufficiency of a claim.
For the purpose of determining the effect of a complaint, its allegations are liberally construed, with a view toward substantial justice.
In this respect, the Court treats the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law, and considers matters which may be judicially noticed.
A general demurrer does not admit contentions, deductions, or conclusions of fact or law alleged in the complaint; facts impossible in law; or allegations contrary to facts of which a court may take judicial notice.
Extrinsic evidence may not properly be considered on demurrer or on a motion to strike.
A demurrer may be sustained only if the complaint lacks any sufficient allegations to entitle the plaintiff to relief.
"Plaintiff need only plead facts showing that he may be entitled to some relief . . . , we are not concerned with plaintiff's possible inability or difficulty in proving the allegations of the complaint."
"[Courts] are required to construe the complaint liberally to determine whether a cause of action has been stated, given the assumed truth of the facts pleaded."
A demurrer admits the truth of all material facts properly pled and the sole issue raised by a general demurrer is whether the facts pled state a valid cause of action - not whether they are true.
AnalysisFirst Cause of Action for Violation of Civil Code § 2923.6Defendants contend that Plaintiffs fail to state a claim under Civil Code section 2923.6(c), (e), or (f). While Defendants argue these subsections in this order, the Court first turns to subsection (f), as that was discussed in the Court of Appeals ruling.
Section 2923.6(f) provides: "Following the denial of a first lien loan modification application, the mortgage servicer shall send a written notice to the borrower identifying the reasons for denial." (See 4AC ¶ 35.) Defendants argue that Plaintiffs' 4AC includes a claim for a violation of Civil Code section 2923.6(f), but that, where a trustee's deed has been recorded, as is the case here, a violation of section 2923.6 is limited to "actual economic damages . . . resulting from a material violation[.]" (Civ. Code § 2923.6(b).) Defendants argue that Plaintiffs "still fail to plead facts showing that any violation was material, or that Plaintiffs were damaged thereby.
Materiality is a violation that "affected [the [plaintiff's] loan obligations or the loan modification process."
As noted by the Third District Court of Appeal in its opinion in this case: "Without knowing the investor's actual reason for denying the HAMP modification, we cannot say for certain that the failure to provide "specific reasons for the investor disallowance" was not material." (Potocki, 38 Cal.App.5th at 571.) Apropos of that, in opposition, Plaintiffs allege that courts often hold that materiality is a factual question that which should not be resolved at the pleadings stage,
Plaintiffs argues that other courts suggest that any violation undermining the purpose of HBOR is a material violation,
Plaintiffs then additionally set forth they have alleged a material violation(s) and significant damages sustained by Plaintiffs as a result. Regardless, the Court finds that Plaintiff has sufficiently alleged a cause
of action sufficient to survive demurrer.
The decision further states: "Here, a claim was stated as to the denial of
the HAMP modification. The explanation that '[we] do not
have the contractual authority to modify your loan because of limitations in our
servicing agreement,' does not suffice as an explanation-at least for
purposes of a demurrer. Accordingly, the Court overrules the demurrer on this basis. Since a defendant cannot demurrer to a part of a cause of action, the Court need not address Defendants' additional arguments related to this cause of action. Second Cause of Action for Violation of Civil Code § 2924(a)(6) Civil Code section 2924(a)(6) provides that an entity shall not
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. Essentially, Plaintiffs' 4AC alleges Defendants lacked standing to foreclose. (4AC ¶¶ 39-40.) Defendants argue the deed of trust names Wells Fargo, N.A. as the lender. (Defendants' RJN, Exh. A, p. 1.) In opposition, Plaintiffs state "[t]hough the allegations are not completely
detailed, they rest on case law that holds that U.S. BANK and WELLS FARGO lacked
beneficial interest and authority to direct the foreclosure sale due to the
mortgage being pooled after the closing date of the trust in which it was
pooled." Third Cause of Action for Wrongful ForeclosureDefendants argue Plaintiffs' wrongful foreclosure claim is duplicative of their other claims, and that Plaintiffs fail to plead a claim on the merits or tender. To state a wrongful foreclosure cause of action, a plaintiff must show: "
Defendant argues "[b]ecause Plaintiffs' HBOR and standing claims are without merit, . . . Plaintiffs cannot establish the first element of a wrongful foreclosure claim. Further, even if there was a technical violation, Plaintiffs have not and cannot plead facts showing that they were prejudiced thereby.
('[A] plaintiff in a suit for wrongful foreclosure has generally been required to demonstrate the alleged imperfection in the foreclosure process was prejudicial to the plaintiff's interests.') (internal quotations omitted)." Defendants also argue Plaintiffs cannot establish the element of tender, which is required to show that the borrower could give proof he or she could redeem the property. In opposition, Plaintiffs argue the allegations support that the violations were material and proximately caused Plaintiffs to suffer significant damages and ultimately the loss of their home. Plaintiffs also argue the claim is not duplicative because it provides for different remedies. In response to the tender argument, Plaintiffs argue they are excused
from that requirement because it is not required in instances where the
foreclosure sale is void because the foreclosing parties lacked beneficial
interest and authority in conducting the sale, or when requiring tender would be
inequitable.
Defendants contend "Plaintiff also cannot seek equity because they have not done equity - no mention is made in the Opposition of their failure to pay a six figure sum due and owing over nearly eleven years,"
Regardless, since the demurrer to the first cause of action is overruled, and both parties are in agreement that this cause of action is predicated on either cause of action, the demurrer to the wrongful foreclosure cause of action is overruled. ConclusionThe demurrer is OVERRULED as to the first cause of action for violation of Civil Code section 2923.6 and third cause of action for wrongful foreclosure, and SUSTAINED, with leave to amend, as to the second cause of action for violation of Civil Code section 2924(a)(6). Plaintiffs shall file and serve an amended complaint no later than October 7, 2020. Defendants shall file and serve a response within 30 days thereafter, 35 days if the amended complaint is served by mail as modified by the Code of Civil Procedure section 430.41 extension if necessary. This minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or other notice is required. COURT RULINGThe matter was argued and submitted. The matter was taken under submission. Having taken the matter under submission on 09/24/2020, the Court now rules as follows:
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