Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-01483/USCOURTS-cand-3_15-cv-01483-5/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NATHAN TERRY; GERALDINE

TERRY,

Plaintiffs,

 v.

WELLS FARGO BANK, N.A.; U.S.

BANK, N.A.; and DOES 1 through 50,

inclusive,

Defendants. /

No. C 15-01483 WHA

ORDER DENYING MOTION

FOR LEAVE TO AMEND

INTRODUCTION

In this foreclosure dispute, plaintiff borrowers move for leave to file an amended

complaint to assert a claim under federal regulations. To the extent stated herein, the motion is

DENIED.

STATEMENT 

The following well-pled facts are assumed to be true for the purposes of the present

motion. In November 2006, plaintiffs Nathan Terry and Geraldine Terry obtained a mortgage

from Wells Fargo Bank, N.A. to purchase a single-family residence in Fremont, California. In

January 2011, another deed of trust was recorded on the property.

In July 2012, plaintiffs applied for a loan modification. In October 2012, Wells Fargo

approved plaintiffs for a Trial Period Plan (the “TPP Agreement”). Pursuant to the TPP

Agreement, plaintiffs made three trial period payments of $2,905.04 from November 2012 to

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January 2013. The TPP stated that “[u]pon successful completion of these payments, we will

offer you a mortgage modification” (Amd. Compl. ¶¶ 9–11).

In December 2012, in the middle of the trial period, Wells Fargo sent plaintiffs a letter

stating that the mortgage was not in first lien position. The letter requested that plaintiffs obtain

signed subordination agreements from the other lien holders on the property (id. ¶ 13). 

Plaintiffs then made repeated attempts to contact their “single point of contact” at Wells Fargo

to inquire about the subordination issue. Plaintiffs’ calls were not returned (id. ¶¶ 13–16). 

In March 2013, after plaintiffs had successfully completed the trial period pursuant to

the TPP Agreement, Wells Fargo sent plaintiffs a letter stating that they did not qualify for the

mortgage assistance program. The letter provided no information about the reason for the

denial (id. ¶ 19). 

In November 2013, defendants recorded a notice of default. Plaintiffs again attempted

to reach their “single point of contact” at Wells Fargo but to no avail. Plaintiffs reached a

general Wells Fargo representative who advised plaintiffs to submit a new loan modification

application. The representative indicated that she would send a modification application to

plaintiffs. On January 6, 2014, plaintiffs received the application packet and, on or around

January 14, 2014, plaintiffs submitted the application to Wells Fargo.

On or around January 14, 15, and 17, 2014, Wells Fargo (id. ¶¶ 23–24):

sent Plaintiffs letters confirming receipt of Plaintiffs’ application

and [sic] would inform Plaintiffs if any additional documents were

needed. Thereafter, Defendant sent Plaintiffs a letter requesting

that Plaintiffs submit additional documents which were not

initially requested from Plaintiffs by Defendant. Specifically, the

letter stated that Plaintiffs would need to submit proof of income

by no later than April 20, 2014. The letter also stated that “[w]e’ll

continue to work with you to help you avoid a foreclosure

sale....[i]f your loan has been referred to foreclosure, we will not

conduct a foreclosure sale on this loan while your documents are

being reviewed.” 

On or around April 1, 2014, plaintiffs submitted all documentation requested by Wells Fargo.

Despite the pending modification application, defendants recorded a notice of trustee’s

sale in February 2014 (Amd. Compl. ¶ 26). From what can be gleaned from the complaint, the

property has not yet been sold in foreclosure.

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In March 2015, plaintiffs filed a complaint alleging: (1) breach of contract; (2) violation

of California Civil Code Section 2923.6; (3) violation of California Civil Code Section 2923.7;

(4) violation of California Civil Code Section 2924.17; (5) violation of California Civil Code

Section 2924.10; and (6) violation of Business and Professions Code Section 17200 et seq.

Defendants moved to dismiss the complaint for failure to state a claim or, in the

alternative, for a more definite statement (Dkt. No. 21). A subsequent order allowed the bulk of

the claims to proceed but granted the motion to dismiss the claim under Section 2923.6 as to the

2014 application. As to that claim, the order concluded that plaintiffs had not pled facts

sufficient to show that they had submitted a “complete” modification application in 2014 as

required under Section 2923.6 and that, therefore, the 2014 application (as opposed to the 2012

modification application) had not triggered HBOR’s protections against dual-tracking.

Plaintiffs now seek to file an amended complaint that alleges that, under federal

regulations, plaintiffs’ 2014 modification application was complete and that, therefore,

defendants violated federal regulations by recording a notice of trustee’s sale in February 2014. 

ANALYSIS

Under Rule 15, leave to amend should be freely given absent undue delay, bad faith or

dilatory motive, repeated failure to cure deficiencies, futility of amendment, and prejudice to the

opposing party. Foman v. Davis, 371 U.S. 178, 182 (1962). The general rule that parties be

allowed to amend does not extend to situations where amendment would be an exercise in

futility or where the amended complaint would also be subject to dismissal. Steckman v. Hart

Brewing, Inc., 143 F.3d 1293, 1298 (9th Cir. 1998). “Futility of amendment can, by itself,

justify the denial of a motion for leave to amend.” Bonin v. Calderon, 59 F.3d 815, 845

(9th Cir. 1995).

The federal regulations contain prohibitions against dual-tracking that are similar to

those contained in the California Homeowner’s Bill of Rights. A previous order concluded that

plaintiffs’ 2014 modification application did not trigger the dual-tracking prohibitions under

HBOR. Plaintiffs now seek leave to amend in order to allege that the 2014 modification

application is entitled to the dual-tracking prohibitions under federal regulations. Specifically,

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plaintiffs contend that, under 12 C.F.R. 1024.41(c)(2)(iv), their 2014 application was “facially

complete,” and that, therefore, defendants were prohibited from recording a notice of trustee’s

sale under 12 C.F.R. 1024.41(g). 

Under federal regulations, a servicer shall not move for foreclosure judgment or order of

sale, or conduct a foreclosure sale if a borrower has submitted a “complete” modification

application. 12 C.F.R. 1024.41(g). A servicer can also be prohibited from moving for

foreclosure judgment or order of sale if an application is “facially complete” and certain other

conditions are met. Under 12 C.F.R. 1024.41(c)(2)(iv), an application is deemed “facially

complete” only “if a borrower submits all the missing documents and information as stated in

the notice required pursuant to § 1026.41(b)(2)(i)(B), or no additional information is requested

in such notice.”

Plaintiffs allege that they received two types of responses from Wells Fargo: (1) letters

sent on January 14, 15, and 17, 2014, acknowledging receipt of the application; and (2) a letter

sent on January 20, 2014, which requesting that plaintiffs submit additional documents (Amd.

Compl. ¶¶ 23–24). At the hearing, plaintiffs’ counsel asserted that the letters sent on January

14, 15, and 17 were “notices” under 12 C.F.R. 1024.41(b)(2)(i)(B). Given this interpretation,

and given the allegation that this letter did not ask for additional documentation, plaintiffs assert

that their modification was “facially complete” under 12 C.F.R. 1024.41(c)(2)(iv) and plaintiffs

were therefore eligible for the regulations’ protections from foreclosure proceedings.

In essence, plaintiffs contend that because Wells Fargo acknowledged receipt of the

modification application and did not simultaneously request additional documentation,

plaintiffs’ modification application should be deemed “facially complete” as of the day of the

first acknowledgment letter. This order concludes, however, that the letters sent on January 14,

15, and 17 were not “notices” within the meaning of 12 C.F.R. 1024.41(b)(i)(B) and that

therefore plaintiffs’ application was not “facially complete” as of February 21 when Wells

Fargo recorded the notice of trustee’s sale.

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Under 12 C.F.R. 1024.41(b)(i)(A), a servicer must “promptly” determine if an

application is complete upon receipt of a loss mitigation application forty-five or more days

before a foreclosure sale. Under 12 C.F.R. 1024.41(b)(i)(B), a servicer must then:

Notify the borrower in writing within 5 days (excluding legal public holidays,

Saturdays, and Sundays) after receiving the loss mitigation application that the

servicer acknowledges receipt of the loss mitigation application and that the

servicer has determined that the loss mitigation application is either complete or

incomplete. If a loss mitigation application is incomplete, the notice shall state

the additional documents and information the borrower must submit to make the

loss mitigation application complete and the applicable date pursuant to

paragraph (b)(2)(ii) of this section. The notice to the borrower shall include a

statement that the borrower should consider contacting servicers of any other

mortgage loans secured by the same property to discuss available loss

mitigation options.

 The letters sent to plaintiffs on January 14, 15, and 17 allegedly acknowledged receipt

of the application but, as alleged, the letters did not address whether “the servicer ha[d]

determined that the loss mitigation application [was] either complete or incomplete” as required

under 12 C.F.R. 1024.41(b)(i)(B). The letters merely stated that Wells Fargo “would inform

Plaintiffs if any additional documents were needed” (Amd. Compl. ¶ 24). 

This order therefore concludes that the letters sent on January 14, 15, and 17 were not

“notices” within the meaning of 12 C.F.R. 1024.41(b)(i)(B). To hold otherwise would be to

discourage servicers from acknowledging receipt of an application until all missing

documentation has been identified. Borrowers benefit from prompt acknowledgment of an

application, however, as time is precious when a foreclosure is on the horizon. As long as the

bank “promptly” determines completeness, it need not do so “immediately.”

To be sure, Wells Fargo had a duty to notify plaintiffs within five days (excluding

weekends and holidays) as to whether their application was complete or incomplete. But here,

the facts alleged suggest that Wells Fargo complied with that duty by sending a letter on

January 20 that requested additional documentation. As opposed to the letters sent on January

14, 15, and 17, this letter was a “notice” within the meaning of 12 C.F.R. 1024.41(b)(i)(B). As

such, plaintiffs’ application was not “facially complete” as of February 21 when defendants

recorded a notice of trustee’s sale because plaintiffs had not yet submitted the documentation

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requested (they did not do so until April 1). Because the application was not “facially

complete” on February 21, it did not trigger the prohibitions against dual-tracking. 

Amendment would be futile because the proposed amended complaint fails to state a

claim under the federal regulations. As such, plaintiffs’ motion for leave to amend is DENIED.

CONCLUSION

A prior order allowed the bulk of plaintiffs’ claims to proceed but granted dismissal as

to one of plaintiffs’ claims. Plaintiffs now seek leave to file an amended complaint. For the

reasons stated herein, plaintiffs’ motion for leave to amend is DENIED.

IT IS SO ORDERED.

Dated: July 26, 2016. WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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