Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-04059/USCOURTS-cand-3_14-cv-04059-6/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1332 Diversity-(Citizenship)

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

ELIZABETH GONZALES,

Plaintiff,

v.

CITIMORTGAGE, INC, et al.,

Defendants.

___________________________________/

No. C-14-4059 EMC

ORDER GRANTING DEFENDANT’S

MOTION TO STRIKE, AND DENYING

DEFENDANT’S MOTION TO DISMISS

(Docket Nos. 38-39)

I. FACTUAL & PROCEDURAL BACKGROUND

In 1997, Plaintiff purchased a property located in Rodeo, California. FAC at ¶ 8. Since then,

Plaintiff has lived on that property with her children. See FAC at ¶ 8, 11. Following her divorce,

Plaintiff encountered financial difficulties which made it harder for her to pay her mortgage. FAC at

¶ 11. After continued difficulties and entering default, Plaintiff contacted Citimortgage

(“Defendant”) regarding foreclosure prevention options on May 12, 2014. FAC at ¶ 14. In the

course of discussions, Defendant’s employee, Susan Polcyn, represented that Plaintiff was prequalified for a loan modification, and provided Plaintiff with a list of documents that would be

necessary to complete her loan modification. Id. As of June 13, 2014, Plaintiff had provided every

document requested by Defendant pursuant to Plaintiff’s loan modification application. FAC at ¶ 22.

On August 15, 2014, Defendant caused to be recorded a Notice of Trustee’s Sale for

Plaintiff’s Property which indicated that Plaintiff’s property is scheduled to sell on September 15,

2014. FAC at ¶ 23. At no point before August 15, 2014 did Plaintiff receive a response regarding

her loan modification application. Id.

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On October 22, 2014, Plaintiff filed an amended complaint, alleging that Defendant’s

recordation a Notice of Trustee Sale violated Sections 2923.6 and 2924.17 of the California Civil

Code. Docket No. 34. Currently pending before the Court is Defendant’s motion to (1) strike

Plaintiff’s request for damages; and (2) dismiss Plaintiff’s claims as legally deficient. 

II. DISCUSSION

A. Motion to Strike

1. Legal Standard 

Rule 12(f) of the Federal Rules of Civil Procedure provides that a court may strike “from any

pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter”. 

Fed. R. Civ. P. 12. Motions to strike are generally not granted unless it is clear that the matter to be

stricken could have no possible bearing on the subject matter of the litigation. Colaprico v. Sun

Microsystems, Inc., 758 F. Supp. 1335, 1339 (N.D. Cal.1991). 

2. Request for Damages

Plaintiff’s complaint provides two causes of action for violations of Sections 2923.6 and

2924.17 of the California Civil Code. Both of these code sections are a part of the Home Owner’s

Bill of Rights (HBOR) and regulate foreclosure proceedings.

Section 2923.6 provides, in relevant portion:

(c) If 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. 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 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.

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Cal. Civ. Code § 2923.6

Section 2924.17 provides, in relevant portion:

[A] notice of default, notice of sale, assignment of a deed of trust, or

substitution of trustee recorded by or on behalf of a mortgage servicer

in connection with a foreclosure subject to the requirements of Section

2924, or a declaration or affidavit filed in any court relative to a

foreclosure proceeding shall be accurate and complete and supported

by competent and reliable evidence.

(b) Before recording or filing any of the documents

described in subdivision 

(a), a mortgage servicer shall ensure that it has

reviewed competent and reliable evidence to

substantiate the borrower’s default and the right to

foreclose, including the borrower’s loan status and loan

information.

Cal. Civ. Code § 2924.17.

Defendant argues that neither of these causes of action entitle Plaintiff to the punitive, actual,

compensatory or statutory damages it requests. Specifically, Defendant argues that because a

foreclosure sale has not – and will not – take place, the Plaintiff is statutorily limited to injunctive

relief, attorney’s fees, and costs. 

The HBOR provides a claim for monetary damages for any material violations of Sections

2923.6 and 2924.17 that go uncorrected prior to the recordation of a trustee deed upon sale. See id.

§ 2924.12(b) (“After a trustee’s deed upon sale has been recorded, a mortgage servicer, mortgagee,

trustee, beneficiary, or authorized agent shall be liable to a borrower for actual economic damages

pursuant to Section 3281, resulting from a material violation of Section 2923.55, 2923.6, 2923.7,

2924.9, 2924.10, 2924.11, or 2924.17. . .”); see also id. § 2924.12(c) (“A mortgage servicer,

mortgagee, trustee, beneficiary, or authorized agent shall not be liable for any violation that it has

corrected and remedied prior to the recordation of a trustee’s deed upon sale, or that has been

corrected and remedied by third parties working on its behalf prior to the recordation of a trustee’s

deed upon sale.”). HOBR further provides that “[a] court may award a prevailing borrower

reasonable attorney’s fees and costs[.]” Id. § 2924.12(i). The law defines a “prevailing borrower” as

one who has “obtained injunctive relief or was awarded damages pursuant to this section.” Id.

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Here, it is undisputed that no trustee’s deed upon sale was filed and that no foreclosure has

taken place. See Docket No. 30. Because a foreclosure sale has not taken place, and thus a trustee

deed upon sale has not been recorded, Plaintiff has not stated a claim for damages under §

2924.12(b) and (c). See Vasquez v. Bank of Am. , N.A., No. 13-CV-02902-JST, 2013 WL 6001924,

at *7 (N.D. Cal. Nov. 12, 2013) (“Plaintiff’s claims in FAC ¶ 27 for actual damages, attorneys’ fees,

and treble damages are unavailable until such time as the deed upon sale has been recorded.”). 

Hence, Plaintiff’s request for damages must be stricken, but it is without prejudice should a

foreclosure take place in violation of § 2923.6. 

Plaintiff’s counter-arguments are mistaken. First, Plaintiff argues that its request for

damages should survive because it will seek leave to add a claim for wrongful foreclosure – which

could support its request for damages. However, a future and contingent amendment does not cure

the defective request for damages in the current operative complaint – which is the subject of the

motion. See Fed. Rule Civ. Proc., R. 12(f).

Second, Plaintiff argues that it is entitled to punitive damages because it alleged that

Defendant committed its violations with a conscious disregard of the Plaintiff’s rights. Docket No.

42 at 2 (citing Tomaselli v. Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1286 (1994) (stating that

punitive damages can, in some cases, be supported by a showing that a violation was carried out “by

the defendant with a willful and conscious disregard of the rights or safety of others”). This

argument is unavailing because it does not address the statutory lack of authority to award damages

prior to a foreclosure sale as discussed above. 

Accordingly, the Court GRANTS Defendant’s motion to strike Plaintiff’s request for

disgorgement, actual, compensatory, statutory, exemplary and punitive damages, without prejudice. 

B. Motion to Dismiss

1. Legal Standard

Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss based on the

failure to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6). A motion to

dismiss based on Rule 12(b)(6) challenges the legal sufficiency of the claims alleged. See Parks

Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In considering such a motion, a court

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must take all allegations of material fact as true and construe them in the light most favorable to the

nonmoving party, although “conclusory allegations of law and unwarranted inferences are

insufficient to avoid a Rule 12(b)(6) dismissal.” Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir.

2009). While “a complaint need not contain detailed factual allegations . . . it must plead ‘enough

facts to state a claim to relief that is plausible on its face.’” Id. “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.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); see

also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). “The plausibility standard is not akin to

a ‘probability requirement,’ but it asks for more than sheer possibility that a defendant acted

unlawfully.” Iqbal, 129 S. Ct. at 1949.

2. California Civil Code Section 2923.6

California Civil Code Section 2923.6(c) provides, in relevant portion:

(c) If 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. 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 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.

Cal. Civ. Code § 2923.6(c) (emphasis added). 

Plaintiff alleges that Defendant violated § 2923.6 by doing what that section say its “shall

not.” Specifically, Plaintiff alleges that Defendant recorded a notice of sale after Plaintiff submitted

a complete application for a loan modification, but before the modification plan was rejected by

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either party or defaulted upon by the Plaintiff. FAC ¶ 29. These facts are sufficient to state a claim

for violation of § 2923.6.

In response, Defendant argues that it is insufficient for a plaintiff to plead a mere violation of

§ 2923.6; rather, a plaintiff “must plead a material violation of § 2923.6” to state an actionable

claim. Docket No. 38 at 3 (emphasis added). According to Defendant, § 2924.12(a)(1) creates a

materiality element. That section provides, in relevant portion:

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 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or

2924.17.

Cal. Civ. Code § 2924.12(a)(1) (emphasis added). 

Defendant argues that the premature recording of a foreclosure-related document – such as a

Notice of Trustee Sale – is a “material” violation only if the borrower was in fact qualified for the

modification. According to Defendant, Plaintiff’s claims are insufficient because she has not alleged

that she was actually qualified for a modification.

However, Defendant’s proposed reading imposing such a “materiality” requirement of

Section 2923.6(c) makes little sense and would conflict with the intent of the California Legislature

in its drafting and passage of the Home Owner’s Bill of Rights (HOBR) – in which Section

2923.6(c) is codified. There are a number of technical procedural provisions of 2923.6, violations of

which might not materially affect the borrower. For example, a lender could violate 2923.6(f)(3) if

it denies a lender’s modification application on the basis of a net present value (NPV) calculation,

but fails to include the gross income used to carry out the calculation in its formal letter of denial. 

Such a violation might not materially effect the borrower if the gross income used is undisputed and

the borrower’s application for modification received meaningful consideration.

In contrast, Section 2923.6(c) prohibits the recording of foreclosure documents prior to even

the determination of whether a borrower will receive a modification to its loan. Given the specific

directive of Section 2923.6(c), any violation of its prescribed sequence would appear to be

inherently prejudicial; initiating foreclosure before processing a loan modification request deprives

the borrower of the opportunity expressly preserved by Section 2923.6. 

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Moreover, the preamble to the Home Owner’s Bill of Rights (HOBR) makes clear why

Defendant’s construction is wrong. That preamble provides, in relevant portion:

It is essential to the economic health of this state to mitigate the

negative effects on the state and local economies and the housing

market that are the result of continued foreclosures by modifying the

foreclosure process to ensure that borrowers who may qualify for a

foreclosure alternative are considered for, and have a meaningful

opportunity to obtain, available loss mitigation options. These

changes to the state’s foreclosure process are essential to ensure that

the current crisis is not worsened by unnecessarily adding foreclosed

properties to the market when an alternative to foreclosure may be

available. Avoiding foreclosure, where possible, will help stabilize the

state’s housing market and avoid the substantial, corresponding

negative effects of foreclosures on families, communities, and the state

and local economy.

Cal. Senate Bill No. 900, Ch. 87 (emphasis added). This preamble expresses the legislature’s clear

intent that HOBR protect homeowners that may qualify for a foreclosure alternative, and to ensure

that homeowners that might qualify have a “meaningful opportunity to obtain” “foreclosure

alternative[s].” When read in conjunction with Section 2923.6(c), the Court finds that the intent of

the legislature in creating the claim for injunctive relief in Section 2924.12 was to provide California

homeowners a right to preserve their “opportunity” to be “considered for” a loan modification or

other foreclosure alternative. Defendant’s reading would limit its protection to those who can prove

qualification for a modification, not those who “may qualify” therefor. This reading conflicts with

the intent of the California legislature manifested in the preamble to the HOBR. 

Furthermore, the remedial structure of Section 2923.6 makes clear the statute’s protection of

those who may qualify for modification is not limited to those who are in fact qualified. Prior to

recording of the trustee deed of sale, the plaintiff is entitled only to injunctive relief to stop

foreclosure. Cal. Civ. Code § 2924.12(a)(1). Once enjoined, a lender may then dissolve the

injunction by making the determination of whether the borrower qualifies for a modification. Id. §

2924.12(a)(2) The right to a pre-foreclosure injunction thus obtains prior to any determination by

the lender of the borrower’s qualification for modification. It makes no sense to require a plaintiff to

prove qualification for a modification, in order to obtain a injunction meant to preserve the

opportunity to prove he or she qualifies for a modification.

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In support of its reading, Defendant cites Johnson v. PNC Mortgage, No. C 14-02976 LB,

2014 WL 6629585, at *10 (N.D. Cal. Nov. 21, 2014). In Johnson, the Johnsons brought suit against

PNC mortgage for – among other things – “robo-signing” an assignment of their mortgage in

violation of § 2924.17. Id. at *10. Section 2924.17 provides:

Before recording or filing any of the documents described in

subdivision (a), a mortgage servicer shall ensure that it has reviewed

competent and reliable evidence to substantiate the borrower’s default

and the right to foreclose, including the borrower’s loan status and

loan information.

Cal. Civ. Code § 2924.17. The Johnsons argued that PNC’s “robo-signing” of the assignment – a

document described in subdivision (a) – constituted an actionable violation of Section 2924.17

because it was done without reviewing “competent and reliable evidence” to ensure the Johnsons

had defaulted on their loan before selling the Johnson’s foreclosed property. Id. The court rejected

this argument, and held that Section 2924.19 mandated that only “material” violations of Section

2924.17 were actionable. Id. 

Similar to Section 2924.12, Section 2924.19 provides:

(a)(1) 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 2923.5, 2924.17, or 2924.18 . . .

(b) After a trustee’s deed upon sale has been recorded, a mortgage

servicer, mortgagee, beneficiary, or authorized agent shall be liable to

a borrower for actual economic damages pursuant to Section 3281,

resulting from a material violation of Section 2923.5, 2924.17, or

2924.18 by that mortgage servicer, mortgagee, beneficiary, or

authorized agent where the violation was not corrected and remedied

prior to the recordation of the trustee’s deed upon sale.

Cal. Civ. Code § 2924.19. 

The Johnson court read this code section to limit actionable violations of “[s]ection[s]

2923.5, 2924.17, or 2924.18” to those that are material to the claimant’s loan modification process. 

Id. The court reasoned that the “qualifier ‘material’ must mean something” and that damages

provided under Section 2924.17 must be limited to violations that result in harm – not any and all

violations. Id. 

Unlike the instant case where Plaintiff seeks a pre-foreclosure injunction, a materiality

requirement to obtain damages for violation of Section 2924.17 may make sense; if the lender had

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not reviewed “competent and reliable evidence” to substantiate the right to default, but the lender

did in fact have such a right, the legislature could logically have provided that no money damages

should be awarded to the defaulting buyer. Johnson might be more persuasive to argue a similar

materiality requirement (as suggested by Defendant) be applied to an action for damages under §

2924.12(b) for violation of § 2923.6(c). Here, however, Plaintiff seeks an injunction to preserve

prospectively its procedural right – the opportunity to obtain a loan modification. As noted, the

materiality requirement advocated by Defendant would undercut the core of Section 2923.6(c).

The Court DENIES the motion to dismiss Plaintiff’s Section 2923.6 claim. 

C. California Civil Code Section 2924.17

California Civil Code Section 2924.17 provides, in relevant portion:

Before recording or filing any of the documents described in

subdivision (a), a mortgage servicer shall ensure that it has reviewed

competent and reliable evidence to substantiate the borrower’s default

and the right to foreclose, including the borrower’s loan status and

loan information.

Cal. Civ. Code § 2924.17(b). One of the documents “described in subdivision (a)” of § 2924.17 is a

notice of trustee sale. 

Here, Plaintiff alleges that Defendant caused a notice of trustee sale to be filed “without

substantiating its right to foreclose.” FAC ¶ 32. Similar to Plaintiff’s allegations regarding §

2923.6, Plaintiff alleges conduct that violates the explicit requirement of § 2924.17. Cal. Civ. Code

§ 2924.17(b) (“Before recording or filing [a notice of trustee sale] a mortgage servicer shall ensure

that it has . . . substantiate[d] . . . [its] right to foreclose”). Taken as true, and viewed in the light

most favorable to the Plaintiff, these allegations are sufficient to state a plausible cause of action for

violation of § 2924.17.

Defendant argues that Plaintiff’s claim is insufficient because it “does not allege that NBS

Default Services LLC was acting as an agent for [Defendant]” when it recorded the prohibited

notice. This argument is unpersuasive because Plaintiff alleges that Defendant caused the notice to

be filed. Thus, irrespective of the identity of the entity that physically filed the notice of trustee sale, 

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Plaintiff’s allegations indicate that the notice of trustee sale was filed by an agent of the Defendant

acting on Defendant’s behalf. Such allegations are sufficient to state a claim under Section 2924.17.

Accordingly, the Court DENIES Defendant’s motion to dismiss Plaintiff’s § 2924.17 claims. 

This order disposes of Docket Nos. 38 and 39.

IT IS SO ORDERED.

Dated: June 3, 2015

_________________________

EDWARD M. CHEN

United States District Judge

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