Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_09-cv-01942/USCOURTS-caed-1_09-cv-01942-0/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 15:1601 Truth in Lending

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

RACHEL PARCRAY, )

)

)

)

Plaintiff, )

)

vs. )

)

)

SHEA MORTGAGE INC., et al., )

)

)

Defendants. )

)

)

No. CV-F-09-1942 OWW/GSA

MEMORANDUM DECISION AND

ORDER GRANTING DEFENDANTS'

MOTIONS TO DISMISS FIRST

AMENDED COMPLAINT IN PART

WITH PREJUDICE AND IN PART

WITH LEAVE TO AMEND (Docs.

23 & 25)

Plaintiff Rachel Parcray has filed a First Amended Complaint

(“FAC”)against Defendants Shea Mortgage, Inc. (“Shea”) Aurora

Loan Services, Inc (“ALS”), Mortgage Electronic Registrations

Systems (“MERS”), and Does 1-10. 

1

Plaintiff, a resident of Vallejo, California, alleges that

she owns real property located at 1519 Phlox Drive, Patterson,

California (“Subject Property”). The FAC alleges:

In her pleading, Plaintiff spells her surname “Parcray.” 1

However, on the Deed of Trust and in filings in the Bankruptcy

Court, her surname is spelled “Pacray.”

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5. Plaintiff purportedly entered into a loan

repayment and security agreement on or about

December 1, 2006 with Defendant SHEA ...,

which required Plaintiff to repay a loan of

$462,550.00 to SHEA. SHEA purportedly held a

First Deed of trust [sic] on the Subject

Property. The loan program consisted on an

Interest Rate of 5.250% and an Annual

Percentage Rate of 6.697%. The index used to

calculate the loan was a one (1) Year Libor

Index with a value of 5.300%; a margin of

2.250%; and a cap of 10.250%.

Defendant Shea is alleged to be the original mortgage lender;

Defendant ALS is alleged to be the current mortgage servicer of

the loan; Defendant MERS is alleged to be the beneficiary for the

loan. As “General Allegations,” the FAC alleges:

11. On November 27, 2006, PLAINTIFF executed

a Deed of Trust with the original lender,

Shea Mortgage, Inc. (‘SHEA’) securing a loan

on [the Subject Property].

12. MERS was the alleged beneficiary under

the Deed of Trust. The Deed of Trust was

recorded on December 1, 2006 in the

Stanislaus County Recorder’s Office as

Document Number 2006-1075522-00.

13. Plaintiff alleges on information and

belief that Shea ... did not authorize MERS

to assign the Note to defendant ALS or any

other entity.

14. On March 17, 2009, a Notice of Default

was recorded. The NOD states that the

beneficiary under the Deed is “Mortgage

Electronic Registration Systems, Inc. as

Nominee for Shea Mortgage Inc.’

15. On April 19, 2009, MERS caused a

Substitution of Trustee to be recorded

wherein MERS stated it was the present

beneficiary under the Deed.

16. On June 22, 2009, a Notice of Trustee

Sale was recorded.

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17. Plaintiff alleges that at no time prior

to issuing the notice of default did Shea

Mortgage Inc., MERS or Aurora Loan Service or

anyone acting on its behalf contact plaintiff

to discuss options to pay the loan or to

access plaintiff’s financial situation.

18. Each defendant ‘proceeded to notice the

default and pending sale of the Subject

Property without (1) evaluating plaintiff’s

financial condition regarding foreclosure

avoidance; (2) advising plaintiff of her

statutory right to meet with Defendants

regarding such foreclosure avoidance; and (3)

advising plaintiff of the toll-free federal

Department of Housing and Urban Development

(‘HUD’) telephone number regarding counseling

opportunities to avoid the subject

foreclosure.’

19. Plaintiff is willing and able to tender

the face value of the note minus equitable

set off to the true holder of the underlying

promissory note whom plaintiff believes to be

Shea Mortgage.

20. Plaintiff alleges on information and

belief, that Aurora Loan Servicing does not

have possession of the original note and

cannot inform the terms of the promissory

note.

21. Plaintiff’s loan was recorded during the

period of January 1, 2003, to January 1,

2008, inclusive, and is secured by

residential real property.

22. The loan at issue is the first deed of

trust that the subject property secures.

23. Plaintiff was occupying the underlying

property as her principal residence at the

time the loan became delinquent.

24. Plaintiff has not surrendered the

property, as evidenced by either a letter

confirming the surrender or delivery of the

keys to the property to the mortgagee,

trustee, beneficiary, or authorized agent.

25. Plaintiff has not contracted with any

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organization, person, or entity whose primary

business is advising people who have decided

to leave their homes regarding how to extend

the foreclosure process and avoid their

contractual obligations to mortgagees or

beneficiaries.

26. A case had not be filed by me under

Chapter 7, 11, 12, or 13 of Title 11 of the

United States Code at the time the Notice of

Trustee Sale was recorded.

27. Plaintiff filed bankruptcy on August 21,

2009 and can repay the party entitled to

enforce the promissory note through her

chapter 13 plan.

28. Plaintiff alleges that Shea Mortgage

Inc.’s licensed [sic] was suspended by the

State of California on or about December 24,

2009 and by the Franchise Tax Board on or

about January 4, 2010.

29. Plaintiff alleges that TILA violation

and the creditor’s debt arose from the same

transaction.

30. Plaintiff is asserting the TILA

violation as a set off.

31. The Notice of Trustee Sale failed to

comply with Civil Code Sections 2923.5 and

2932.5.

32. Defendant ALS is attempting to enforce

the terms of the Note and have not provided

plaintiff with any evidence that they are in

physical possession of the original Note.

Defendants ALS and MERS move to dismiss the FAC for failure

to state a claim upon which relief can be granted.2

A. GOVERNING STANDARDS.

Defendant Shea also has filed a motion to dismiss, which is 2

set for hearing on June 21, 2010. Because the rulings herein apply

to Defendant Shea, this Memorandum Decision resolves its motion as

well.

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A motion to dismiss under Rule 12(b)(6) tests the

sufficiency of the complaint. Novarro v. Black, 250 F.3d 729,

732 (9 Cir.2001). Dismissal is warranted under Rule 12(b)(6) th

where the complaint lacks a cognizable legal theory or where the

complaint presents a cognizable legal theory yet fails to plead

essential facts under that theory. Robertson v. Dean Witter

Reynolds, Inc., 749 F.2d 530, 534 (9 Cir.1984). In reviewing a th

motion to dismiss under Rule 12(b)(6), the court must assume the

truth of all factual allegations and must construe all inferences

from them in the light most favorable to the nonmoving party. 

Thompson v. Davis, 295 F.3d 890, 895 (9 Cir.2002). However, th

legal conclusions need not be taken as true merely because they

are cast in the form of factual allegations. Ileto v. Glock,

Inc., 349 F.3d 1191, 1200 (9 Cir.2003). “A district court th

should grant a motion to dismiss if plaintiffs have not pled

‘enough facts to state a claim to relief that is plausible on its

face.’” Williams ex rel. Tabiu v. Gerber Products Co., 523 F.3d

934, 938 (9 Cir.2008), quoting Bell Atlantic Corp. v. Twombly,

th

550 U.S. 544, 570 (2007). “‘Factual allegations must be enough

to raise a right to relief above the speculative level.’” Id. 

“While a complaint attacked by a Rule 12(b)(6) motion to dismiss

does not need detailed factual allegations, a plaintiff’s

obligation to provide the ‘grounds’ of his ‘entitlement to

relief’ requires more than labels and conclusions, and a

formulaic recitation of the elements of a cause of action will

not do.” Bell Atlantic, id. at 555. A claim has facial

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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. Id. at 556. 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, Id. Where a complaint pleads facts that

are “merely consistent with” a defendant’s liability, it “stops

short of the line between possibility and plausibility of

‘entitlement to relief.’” Id. at 557. In Ashcroft v. Iqbal, ___

U.S. ___, 129 S.Ct. 1937 (2009), the Supreme Court explained:

Two working principles underlie our decision

in Twombly. First, the tenet that a court

must accept as true all of the allegations

contained in a complaint is inapplicable to

legal conclusions. Threadbare recitations of

the elements of a cause of action, supported

by mere conclusory statements, do not suffice

... Rule 8 marks a notable and generous

departure from the hyper-technical, codepleading regime of a prior era, but it does

not unlock the doors of discovery for a

plaintiff armed with nothing more than

conclusions. Second, only a complaint that

states a plausible claim for relief survives

a motion to dismiss ... Determining whether a

complaint states a plausible claim for relief

will ... be a context-specific task that

requires the reviewing court to draw on its

judicial experience and common sense ... But

where the well-pleaded facts do not permit

the court to infer more than the mere

possibility of misconduct, the complaint has

alleged - but it has not ‘show[n]’ - ‘that

the pleader is entitled to relief.’ ....

In keeping with these principles, a court

considering a motion to dismiss can choose to

begin by identifying pleadings that, because

they are no more than conclusions, are not

entitled to the assumption of truth. While

legal conclusions can provide the framework

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of a complaint, they must be supported by

factual allegations. When there are wellpleaded factual allegations, a court should

assume their veracity and then determine

whether they plausibly give rise to an

entitlement to relief.

 Immunities and other affirmative defenses may be upheld on

a motion to dismiss only when they are established on the face of

the complaint. See Morley v. Walker, 175 F.3d 756, 759 (9th

Cir.1999); Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th

Cir. 1980) When ruling on a motion to dismiss, the court may

consider the facts alleged in the complaint, documents attached

to the complaint, documents relied upon but not attached to the

complaint when authenticity is not contested, and matters of

which the court takes judicial notice. Parrino v. FHP, Inc, 146

F.3d 699, 705-706 (9 Cir.1988). th

B. REQUEST FOR JUDICIAL NOTICE.

Defendants request the Court take judicial notice of the

following documents in resolving their motions to dismiss:

Exhibit A - Deed of Trust executed on

November 27, 2006 and recorded on December 1,

2006 in the Stanislaus County Recorder’s

Office as Document Number 2006-017552-00;

Exhibit B - Grant Deed recorded on December

1, 2006 in the Stanislaus County Recorder’s

Office as Document Number 2006-175519-00;

Exhibit C - Notice of Default recorded on

March 17, 2009 in the Stanislaus County

Recorder’s Office as Document Number 09-

26272;

Exhibit D - Substitution of Trustee recorded

on April 29, 2009 in the Stanislaus County

Recorder’s Office as Document Number 09-

41622;

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Exhibit E - Notice of Trustee’s Sale recorded

on June 22, 2009 in the Stanislaus County

Recorder’s Office as Document Number 09-

61725;

Exhibit F - Trustee’s Deed Upon Sale recorded

on July 15, 2009 in the Stanislaus County

Recorder’s Office as Document Number 09-

09515.

Plaintiff requests the Court take judicial notice of

Defendant Shea’s motion to dismiss filed on March 24, 2010 (Doc.

25). Defendant Shea’s motion to dismiss is set for hearing on

June 21, 2010. 

The parties do not object to the respective requests for

judicial notice. The Court may take judicial notice of matters

of public record pursuant to Rule 201, Federal Rules of Evidence,

and the Court may take judicial notice of its own records. The

respective requests for judicial notice are granted. 

C. FIRST CAUSE OF ACTION.

The First Cause of Action is for declaratory relief against

ALS. Plaintiff alleges that an actual controversy exists between

Plaintiff and Defendants concerning the respective rights and

duties under the Note:

34. ... (a) PARCRAY contends that she has a

contractual obligation with SHEA and that

SHEA is the holder of the original Note and

beneficiary under the deed. PARCRAY has no

contractual agreement with defendant ALS. 

Neither ALS nor MERS are the beneficiary

under the Deed. SHEA is no longer a legal

entity and is incapable of transferring the

Note or Deed to defendant ALS. As such, the

Note is unenforceable by ALS and the Deed of

Trust clouds plaintiff’s title to the real

property ... PARCRAY specifically contends

that defendants do not have possession of the

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original promissory note and as a result,

defendant’s [sic] interest in the subject

property is not perfected. PARCRAY further

contends that the Notice of Default and

Notice of Trustee Sale are defective in that

defendant’s [sic] failed to comply with the

provisions of C.C. §§ 2923.5 and 2932.5. (b)

ALS contends that the deed of trust is

enforceable notwithstanding the fact that

there is no original promissory note. 

Defendants further contend that defendant’s

[sic] complied with C.C. §§ 2923.5 and

2932.5.

35. PARCRAY desires a judicial determination

and declaration of PARCRAY’s and ALS’s

respective rights and duties; specifically,

that the December 6, 2009 deed of trust is

ineffective and a legal nullity. That any

debt claimed by defendants is unsecured. A

declaration is appropriate at this time so

that PARCRAY and ALS may determine their

rights and duties that are the subject of

this dispute.

Defendants move to dismiss the First Cause of Action for

declaratory relief. 

28 U.S.C. § 2201(a) provides:

In a case of actual controversy within its

jurisdiction ..., any court of the United

States, upon the filing of an appropriate

pleading, may declare the rights and other

legal relations of any interested party

seeking such declaration, whether or not

further relief is or could be sought. Any

such declaration shall have the force and

effect of a final judgment or decree and

shall be reviewable as such.

28 U.S.C. § 2202 provides that “[f]urther or proper relief based

on a declaratory judgment or decree may be granted, after

reasonable notice and hearing, against any adverse party whose

rights have been determined by such judgment.” 

It is well-settled that the Declaratory Relief Act’s “actual

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controversy” requirement is the same as the case or controversy

requirement of Article III of the United States Constitution. 

Societe de Conditionnement en Aluminum v. Hunter Eng’g Co., 655

F.2d 938, 942 (9 Cir.1981), citing Aetna Life Ins. Co. v. th

Haworth, 300 U.S. 227, 239-240 (1937). The Act requires no more

stringent showing of justiciability than the Constitution does. 

Societe de Conditionnement, 655 F.2d at 942. Issuing a

declaratory judgment in a case without an actual controversy is

an advisory opinion, which is prohibited by Article III. 

Hillblom v. United States, 896 F.2d 426, 430 (9 Cir.1990): th

A ‘controversy’ in this sense must be one

that is appropriate for judicial

determination ... A justiciable controversy

is thus distinguished from a difference or

dispute of a hypothetical or abstract

character; from one that is academic or moot

... The controversy must be definite and

concrete, touching the legal relations of

parties having adverse legal interests ... It

must be a real and substantial controversy

admitting of specific relief through a decree

of conclusive character, as distinguished

from an opinion advising what the law would

be upon a hypothetical state of facts.

Aetna, 300 U.S. at 240-241. A controversy exists justifying

declaratory relief only when the challenged government activity

has not disappeared or evaporated, and, “by its continuing and

brooding presence, casts what may well be a substantial adverse

effect on the interests of the petitioning parties.” Headwaters,

Inc. v. Bureau of Land Management, 893 F.2d 1012, 1015 (9 Cir. th

1999). 

The granting of declaratory relief “‘rests in the sound

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discretion of the [] court exercised in the public interest.’”

Natural Resources Defense Council, Inc. v. U.S. E.P.A., 966 F.2d

1292, 1299 (9 Cir.1992). The guiding principles are whether a th

judgment will clarify and settle the legal relations at issue and

whether it will afford relief from the uncertainty and

controversy giving rise to the proceedings. McGraw-Edison Co. v.

Preformed Line Products Co., 362 F.2d 339, 342 (9 Cir.), cert. th

denied, 385 U.S. 919 (1966). A declaratory judgment may be the

basis of further relief against the adverse party. Public

Service Commission of Utah v. Wycoff Co., Inc., 344 U.S. 237, 245

(1952). As explained in Horn & Hardart Co. v. National Rail

Passenger Corp., 843 F.2d 546, 548 (D.C.Cir.1988):

The ‘further relief’ provision[] of ... [the]

federal declaratory judgment statute[]

clearly anticipate[s] ancillary or subsequent

coercion to make an original declaratory

judgment effective ... Section 2202's

retained authority, commentators have noted,

‘merely carries out the principle that every

court, with few exceptions, has inherent

power to enforce its decrees and to make such

orders as may be necessary to render them

effective.’ 

“The existence of another adequate remedy does not preclude

a declaratory judgment that is otherwise appropriate.” Rule 57,

Federal Rules of Civil Procedure.

Defendants argue that the First Cause of Action fails

because Plaintiff seeks only to redress past grievances, rather

than to obtain a declaration of her future rights. Defendants

note that the foreclosure sale of the Subject Property occurred

on July 8, 2009, before Plaintiff commenced this action on August

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24, 2009 in the Stanislaus County Superior Court. 

Defendants further argue that Plaintiff cannot assert a

violation of California Civil Code § 2923.5.

California Civil Code § 2923.5 provides:

(a)(1) A mortgagee, trustee, beneficiary, or

authorized agent may not file a notice of

default pursuant to Section 2924 until 30

days after initial contact is made as

required by paragraph (2) or 30 days after

satisfying the due diligence requirements as

described in subdivision (g).

(2) A mortgagee, beneficiary, or authorized

agent shall contact the borrower in person or

by telephone in order to assess the

borrower’s financial situation and explore

option for the borrower to avoid foreclosure. 

During the initial contact, the mortgagee,

beneficiary, or authorized agent shall advise

the borrower that he or she has the right to

request a subsequent meeting and, if

requested, the mortgagee, beneficiary, or

authorized agent shall schedule the meeting

to occur with 14 days. The assessment of the

borrower’s financial situation and discussion

of options may occur during the first

contact, or at the subsequent meeting

scheduled for that purpose. In either case,

the borrower shall be provided the toll-free

telephone number made available by the United

States Department of Housing and Urban

Development (HUD) to find a HUD-certified

housing counseling agency. Any meeting may

occur telephonically.

(b) A notice of default filed pursuant to

Section 2924 shall include a declaration that

the mortgagee, beneficiary, or authorized

agent has contacted the borrower, has tried

with due diligence to contact the borrower as

required by this section, or that no contact

was required pursuant to subdivision (h). 

Defendants argue that Plaintiff’s alleged violation of

Section 2923.5 is preempted by the Home Owners Loan Act (“HOLA”),

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12 U.S.C. § 1464. 

Congress enacted HOLA “to charter savings associations under

federal law,” Bank of America v. City and County of San

Francisco, 309 F.3d 551, 559 (9 Cir.2002), cert. denied, 538 th

U.S. 1069 (2003), and “to restore public confidence by creating a

nationwide system of federal savings and loan associations to be

centrally regulated according to nationwide ‘best practices,’”

Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 160-

161 (1982). HOLA and its regulations are a “radical and

comprehensive response to the inadequacies of the existing state

system,” and “so pervasive as to leave no room for state

regulatory control.” Conference of Fed. Sav. & Loan Ass’ns v.

Stein, 604 F.2d 1256, 1257, 1260 (9 Cir.1979), aff’d, 445 U.S. th

921 (1980). “[B]ecause there has been a history of significant

federal presence in national banking, the presumption against

preemption of state law is inapplicable.” Bank of America, id.,

309 F.3d at 559. 

Through HOLA, Congress gave the Office of Thrift Supervision

(“OTS”) broad authority to issue regulations governing thrifts. 

Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th

Cir.2008); 12 U.S.C. § 1464. OTS promulgated 12 C.F.R. § 560.2

as a preemption regulation, which “‘has no less preemptive effect

than federal statutes.’” Silvas, id., 514 F.3d at 1005. 

Section 560.2(a) provides:

OTS is authorized to promulgate regulations

that preempt state laws affecting the

operations of federal savings associations

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when deemed appropriate to facilitate the

safe and sound operation of federal savings

associations, to enable federal savings

associations to conduct their operations in

accordance with the best practices of thrift

institutions in the United States, or to

further other purposes of the HOLA. To

enhance safety and soundness and to enable

federal savings associations to conduct their

operations in accordance with best practices

(by efficiently delivering low-cost credit to

the public free from undue regulatory

duplication and burden), OTS hereby occupies

the entire field of lending regulation for

federal savings associations. OTS intends to

give federal savings associations maximum

flexibility to exercise their lending powers

in accordance with a uniform federal scheme

of regulation. Accordingly, federal savings

associations may extend credit as authorized

under federal law, including this part,

without regard to state laws purporting to

regulate or otherwise affect their credit

activities, except to the extent provided in

paragraph (c) or § 560.10 of this part. For

purposes of this section, ‘state law’

includes any state statute, regulation,

ruling, order, or judicial decision. 

3

Section 560.2(b) provides:

Except as provided in § 560.110 of this part,

the types of state laws preempted by

paragraph (a) of this section include,

without limitation, state laws purporting to

impose requirements regarding:

...

(10) Processing, origination,

servicing, sale or purchase of, or

investment or participation in,

mortgages.

....

Section 560.2(c) provides:

12 C.F.R. § 560.110 pertains to “most favored lender usury 3

preemption” and has no apparent relevance to this action.

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State laws of the following types are not

preempted to the extent that they only

incidentally affect the lending operations of

Federal savings associations or are otherwise

consistent with the purposes of paragraph (a)

of this section:

...

(2) Real property law

...

(6) Any other law that OTS, upon 

review, finds:

(i) Furthers a vital state

interest; and

(ii) Either has only an incidental

effect on lending operations or is

not otherwise contrary to the

purposes expressed in paragraph (a)

of this section. 

As noted by the Ninth Circuit in Silvas, 514 F.3d at 1005,

OTS has outlined a proper analysis in evaluating whether a state

law is preempted under Section 560.2:

When analyzing the status of state laws under

§ 560.2, the first step will be to determine

whether the type of law in question is listed

in paragraph (b). If so, the analysis will

end there; the law is preempted. If the law

is not covered by paragraph (b), the next

question is whether the law affects lending. 

If it does, then, in accordance with

paragraph (a), the presumption arises that

the law is preempted. This presumption can

be reversed only if the law can clearly be

shown to fit within the confines of paragraph

(c). For these purposes, paragraph (c) is

intended to be interpreted narrowly. Any

doubt should be resolved in favor of

preemption.

OTS, Final Rule, 61 Fed.Reg. 50951, 50966-50967 (Sept. 30, 1996).

Case law supports Defendants’ assertion that Section 2923.5

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is preempted by HOLA. See Murillo v. Aurora Loan Services, LLC, 

2009 WL 2160579 at *4 (N.D.Cal., July 17, 2009)(“Here, Plaintiffs

allege that Defendants failed to properly file a declaration with

their notice of default ... As applied, Plaintiffs’ § 2923.5

claim concerns the processing and servicing of Plaintiffs’

mortgage. As such, the Court finds that Plaintiffs’ 2923.5 claim

is preempted under HOLA”); Odinma v. Aurora Loan Services, 2010

WL 1199886 at *8 (N.D.Cal., March 23, 2010)(“Here, Plaintiffs

allege that Defendants failed to communicate with Plaintiffs

before beginning the foreclosure process ... Defendants claim

that the notice requirement imposes a state law mandate about

what information must be given to borrowers, and includes a

strict time frame for doing so. Defendant [sic] would not be

subject to these requirements in other states. Therefore,

Plaintiffs’ Section 2923.5 claim concerns the processing and

servicing of Plaintiffs’ mortgage and is preempted by HOLA.”).

Noting that the motion to dismiss is brought by ALS and

MERS, Plaintiff responds that there is no competent evidence

presented that either defendant is a federal savings association

and, therefore, HOLA does not apply to the First Cause of Action. 

See Juarez v. Wells Fargo Bank, 2009 WL 3806325 at *2 (C.D.Cal.,

Nov. 11, 2009). Plaintiff further contends:

In this case, the loan was originated by

defendant Shea Mortgage, Inc. The only

interest Aurora seems to have is by virtue of

a Notice of Trustee’s Deed Upon Sale.

ALS responds that it is a direct subsidiary of Aurora Bank

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FSB, a federal savings association. See Odinma, supra, 2010 WL

1199886 at *7, reciting Aurora’s argument that, because Defendant

is a direct subsidiary of Aurora Bank FSB and citing State Farm

Bank v. Reardon, 539 F.3d 336, 345 (6 Cir.2008), Plaintiff’s th

claim under Section 2923.5 is preempted. 

In Watters v. Wachovia Bank, 550 U.S. 1 (2007), a federally

chartered bank and its subsidiary, a state-chartered mortgage

company, brought suit against the Commissioner of the Michigan

Office or Insurance and Financial Services seeking declaratory

and injunctive relief from state registration and inspection

requirements based on preemption of the National Bank Act. The

Supreme Court held that, under the National Bank Act, a national

bank’s mortgage business, whether conducted by the bank itself or

through the bank’s operating subsidiary, is subject to the

superintendence of the Office of the Comptroller and not to the

licensing, reporting and visitorial regimes of the several states

in which the subsidiary operates. In State Farm Bank v. Reardon,

the Sixth Circuit, relying on Watters, held that OTS’s preemption

regulation preempted application of the Ohio Mortgage Broker Act

to a federal savings association’s independent contractors. 539

F.3d at 340-347. See also SPGGC, LLC v. Ayotte, 488 F.3d 525,

530-534 (1 Cir.2007), cert. denied, 552 U.S. 1185 st

(2008)(relying on Watters and holding that a New Hampshire law

prohibiting the sale of gift cards that carry expiration dates or

administrative fees preempted by the National Banking Act even

though the gift cards were sold through third party agents.) 

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Although the Court has not been requested to take judicial

notice of ALS’s legal relationship with Aurora Bank, FSB, in

Kelley v. Mortgage Electronic Registration Systems, Inc., 642

F.Supp.2d 1048 (N.D.Cal.2009), the District Court took judicial

notice of documents establishing that ALS is a wholly owned

subsidiary of Aurora Bank, a federally chartered savings bank. 

See also Ibarra v. Loan City, 2010 WL 415284 at *5

(S.D.Cal.2010), and many other cases finding the same. At the

hearing, Plaintiff did not assert that ALS is not the wholly

owned subsidiary of Aurora Bank, a federally chartered savings

bank. Because ALS is the subsidiary of Aurora Bank, FSB, the

authority cited above negates Plaintiff’s argument that HOLA does

not apply to ALS. Because the First Cause of Action is alleged

solely against ALS, MERS’ status is irrelevant. Consequently,

Plaintiff’s argument that ALS is not a federal savings

association within the meaning of HOLA is without merit. 

HOLA preempts Plaintiff’s claim based on the alleged

violation of Section 2923.5 because the claim concerns the

processing and servicing of Plaintiffs’ mortgage.4

Defendants move to dismiss the First Cause of Action to the

Because HOLA preempts Plaintiff’s Section 2923.5 claim, it is 4

unnecessary to address the arguments that the Notice of Default

complied with the requirements of Section 2923.5; that the

declaration of compliance with Section 2923.5 in the Notice of

Default does not satisfy the requirements for an unsworn

declaration in California Code of Civil Procedure § 2015.5; that

Plaintiff fails to allege she suffered any prejudice as a result of

the alleged violation of Section 2923.5; and that Plaintiff has not

tendered the full balance owing on the loan.

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extent it alleges that Defendants “have not provide Plaintiff

with any evidence that they are in physical possession of the

original Note,” citing numerous cases holding that there is no

statutory duty is imposed on the trustee or beneficiary to

produce the promissory note before proceeding with a nonjudicial

foreclosure. See, e.g., Chilton v. Federal Nat. Mortg. Ass’n,

2009 WL 5197869 (E.D.Cal., Dec. 23, 2009) and cases cited

therein.

In her opposition, Plaintiff agrees that Defendants do not

have to produce the original promissory note in order to conduct

a non-judicial foreclosure under California Civil Code § 2924. 

However, Plaintiff asserts that the parties are bound by the

express provisions of the underlying Deed of Trust, referring to

Exh. A of Defendants’ Request for Judicial Notice. Plaintiff

notes that the Deed of Trust defines the “lender” as Defendant

Shea and the beneficiary as Defendant MERS. Plaintiff then

refers to Paragraph 22 of the Deed of Trust:

NON-UNIFORM COVENANTS. Borrower and Lender

further covenant and agree as follows:

22. Acceleration; Remedies. Lender shall

give notice to Borrower prior to acceleration

following Borrower’s breach of any covenant

or agreement in this Security Instrument ...

If the default is not cured on or before the

date specified in the notice, Lender at its

option may require immediate payment in full

of all sums secured by this Security

Instrument without further demand and may

invoke the power of sale and any other

remedies permitted by Applicable Law ....

If Lender invokes the power of sale, Lender

shall execute or cause Trustee to execute a

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written notice of the occurrence of an event

of default and of Lender’s election to cause

the Property to be sold.

Relying on this provision in the Deed of Trust, Plaintiff now

argues that only the Lender, Defendant Shea, had to power to

cause the Notice of Default to be recorded, not the beneficiary,

Defendant MERS.

Defendants note that the Deed of Trust provides that “MERS

... is acting solely as a nominee for Lender and Lender’s

successors and assigns,” and that “[t]he beneficiary of this

Security Instrument is MERS (solely as nominee for Lender and

Lender’s successors and assigns) and the successors and assigns

of MERS,” and that “Borrower understands and agrees that MERS

holds only legal title to the interests granted by Borrower in

this Security Instrument, but, if necessary to comply with law or

custom, MERS (as the nominee for Lender and Lender’s successors

and assigns) has the right to exercise any or all of those

interests, including, but not limited to, the right to foreclose

and sell the Property.” 

Pantoja v. Countrywide Home Loans, Inc., 640 F.Supp.2d 1177,

1188-1189 (N.D.Cal.2009), involved the identical provisions in

the Deed of Trust. In rejecting the argument that MERS did not

have the legal authority to foreclose on the property, the

District Court ruled:

Under California law, a ‘trustee, mortgagee,

or beneficiary or any of their authorized

agents’ may conduct the foreclosure process

and ‘a person authorized to record the notice

of default or the notice of sale shall

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include an agent for the mortgagee or

beneficiary, an agent of the named trustee,

any person designated in an executed

substitution of trustee, or an agent of that

substituted trustee.’ Cal.Civ.Code §§

2924(a)(1), (b)(4). If the deed of trust

contains an express provision granting a

power of sale, the beneficiary may pursue

nonjudicial foreclosure under the provisions

of § 2924, often called a ‘trustee’s sale.’ 

Ung v. Koehler, 135 Cal.App.4th 186, 192 ...

(Ct. App.2005); ... Huene v. Cribb, 9

Cal.App.141, 143-44 ... (Ct. App.

1908)(providing that a power of sale must be

express in the deed of trust). 

...

Plaintiff, in relevant part, alleges as

follows:

MERS is always a nominee and never

the actual holder and possessor of

a promissory note or deed of trust

... It is never an actual

beneficiary ... MERS is essentially

a sophisticated electronic bulletin

board for the recording of mortgage

information ...

Subsequently claiming to be the

beneficiary in the Notice of

Default and the Notice of Trustee

Sale, without a chain of evidence

of its right to do so, has been

MERS [sic] ... Countrywide is now

attempting to foreclose upon the

home of [Plaintiff], listing MERS

as the beneficiary, when it does

not have the legal right to do so

....

Plaintiff’s allegations ignore the plain

language of the Deed of Trust. First, the

Deed of Trust expressly designated MERS as

the nominee of the lender and as the

beneficiary ... Second, Plaintiff distinctly

granted MERS the right to foreclose through

the power of sale provision, giving MERS the

right to conduct the foreclosure process

under Section 2924 ... Pursuant to the terms

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of the Deed of Trust and § 2924, as a

beneficiary, MERS has a right to conduct the

foreclosure process. 

Plaintiff’s new contentions concerning Defendant MERS legal

ability to file the Notice of Default are without merit, based on

California law and the express provisions in the Deed of Trust. 

Therefore, leave to amend the First Cause of Action to include

these allegations is futile and is denied on that basis.

Plaintiff further asserts that the Deed of Trust defines the

lender as Shea, MERS as the beneficiary and nominee, and Chicago

Title as the trustee. Plaintiff refers to Defendant Shea’s

memorandum in support of its motion to dismiss wherein Shea

represents that it conveyed its interest to ALS. Plaintiff

asserts that there is no indication in the record how Shea’s

interest was conveyed to ALS. Plaintiff contends: “Plaintiff

speculates it was by an assignment but counsel was unable to find

any recorded documents,” citing California Civil Code § 2932.5:

Whenever a power to sell real property is

given to a mortgagee, or other encumbrancer,

in an instrument intended to secure the

payment of money, the power is part of the

security and vests in any person who by

assignment becomes entitled to payment of the

money secured by the instrument. The power

of sale may be exercised by the assignee if

the assignment is duly acknowledged and

recorded.

In contending that the foreclosure sale is null and void because

it did not comply with the express terms of the Deed of Trust and

statutes, Plaintiff asserts:

On March 17, 2009 a Notice of Default was

recorded. It states that plaintiff should

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contact Aurora to find out the amount to pay,

or arrange for payment to stop the

foreclosure. There are no documents

evidencing Aurora’s role in the Notice of

Default, however there is no indication that

Shea Mortgage Inc. initiated the Notice of

Default as required by the deed of trust. On

June 22, 2009, a Notice of Trustee Sale is

recorded setting a sale date of July 8, 2009. 

Again, the Notice directs the plaintiff to

call Aurora Loan Services. Again, there is

no indication that Shea Mortgage Inc.

initiated or authorized the Notice of Trustee

Sale as required by the deed of trust. Based

on the pleading already filed in this case,

Shea states that it never tried to collect

any money from the plaintiff or was involved

with the foreclosure ... Finally, a Trustee’s

Deed Upon Sale was recorded on July 15, 2009. 

The Deed states ‘The grantee herein is the

foreclosing beneficiary.’ This document

states that Aurora Loan Services foreclosed

on the plaintiff’s property as the

beneficiary. There is no evidence indicating

that Aurora acquired a beneficial interest in

the subject property. Shea Mortgage Inc.

appears to be the only valid beneficiary and

the only one entitled to foreclose.

Plaintiff’s arguments that the foreclosure sale was void

because it was not initiated by Shea and there is no recorded

assignment evidencing the transfer of the loan from Shea to ALS

are without merit. There is no requirement under California law

for an assignment to be recorded in order for an assignee

beneficiary to foreclose. See Roque v. Suntrust Mortg., Inc.,

2010 WL 546896 at *3-5 (N.D.Cal., Feb. 10, 2010):

A. Declaratory Relief.

... Plaintiff argues a second theory, that

under California Civil Code § 2932.5, because

the chain of ownership is unrecorded, the

power of sale in the deed of trust is no

longer valid ....

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California law recognizes two distinct ways

in which a loan may be secured by real

property, either by a mortgage or by a deed

of trust. Yulaeva v. Greenpoint Mortg.

Funding, Inc., 2009 WL 2880393, 1 (E.D.Cal.,

Sept. 3, 2009). A deed of trust generally

involves three parties, the borrower/trustor

(in this case Roque) who conveys the right to

sell the property to the trustee, for the

benefit of the lender/beneficiary. Id. The

practical effect is the creation of a lien on

the subject property. Id. Notwithstanding

that the right of sale is formally with the

trustee, both the beneficiary and the trustee

may commence the non-judicial foreclosure

process. Id. (citing Cal.Code.Civ.Proc. §

725a).

Section 2923.5 applies to mortgages, not

deeds of trust. It applies only to mortgages

that give a power of sale to the creditor,

not to deeds of trust which grant a power of

sale to the trustee. Trustees regularly

foreclose on behalf of assignees for the

original beneficiary. In re Golden Plan of

Cal., Inc., 829 F.2d at 708-77. Accordingly,

plaintiff’s theory under § 2932.5 fails. As

the court previously concluded, non-judicial

foreclosures are governed exclusively by

Cal.Civ.Code Section 2924-2924i.

...

B. Wrongful Foreclosure

Plaintiff next raises a claim for wrongful

foreclosure against only MERS, GMAC and

Deustche Bank. According to plaintiff,

defendants Deustche Bank, MERS and GMAC were

not the proper parties to authorize, initiate

and conduct the foreclosure sale ...

Plaintiff alleges that the notice of default

only provides contact information for MERS

care of ETS Service, LLC ... Plaintiff

appears to be making an argument that because

ETS is neither the mortgagee or the

beneficiary, plaintiff is being deprived of

the right to know the beneficiary making the

foreclosure wrongful ....

An analysis of wrongful foreclosure begins

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with the question of whether the notice of

default was defective. Section 2924 sets

forth the requirements for notices of

default, including that they contain (a) a

statement identifying the mortgage or deed of

trust by stating the name or names of the

trustor or trustors and giving the book and

page, or instrument number, if applicable,

where the mortgage or deed of trust is

recorded or a description of the mortgaged or

trust property; (b) a statement that a breach

of the obligation for which the mortgage or

transfer in trust is security has occurred;

(c) a statement setting forth the nature of

each breach actually known to the

beneficiary; and (4) his or her election to

sell or cause to be sold the property to

satisfy that obligation and any other

obligation secured by the deed of trust or

mortgage that is in default. Cal. Civ. Code

§ 2924(a)(1)(A)-(C). The notice of default

provides notice to plaintiff, along with the

required statement identifying the mortgage,

stating the breach has occurred along with

the nature of the breach. TAC Ex. E. The

declaration further provides a statement

regarding the beneficiary’s election to sell

or cause to be sold the property to satisfy

the obligation ... The information appears

complete, and, plaintiff fails to allege

facts showing that the notice of default was

defective.

Plaintiff’s allegations fail to specify the

subsection of 2924 that defendants allegedly

violated. Plaintiff makes the broad

generalization that defendants violated

section 2924 through 2924(k) ... Plaintiff

raises the argument that no proper chain of

assignment of the note can be demonstrated

and therefore the foreclosure is improper and

fails to meet the requirements of section

2924 ... According to plaintiff, any

substitution of trustee was null and void and

therefore the foreclosure proceedings were

defective and wrongful ....

...

Plaintiff’s claim for wrongful foreclosure

rests on his assertion that defendants

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wrongfully conducted the foreclosure of the

Property. However, ‘[a]n action for the tort

of wrongful foreclosure will lie [only] if

the trustor or mortgagor can establish that

at the time the power of sale was exercised

or the foreclosure occurred, no breach of

condition or failure of performance existed

on the mortgagor’s or trustor’s part which

would have authorized the foreclosure or

exercise of the power of sale.’ Collins v.

Union Federal Sav. & Loan Ass’n, 99 Nev. 282,

662 P.2d 610, 623 (Nev.1983). However,

plaintiff is unable to assert that no breach

of performance occurred. Without such an

assertion plaintiff is unable to raise a

wrongful foreclosure claim ... Therefore,

plaintiff fails to meet his burden in

pleading a claim for wrongful foreclosure,

and the presumption is that defendants had

the right to foreclose. Ernestberg v.

Mortgage Investors Group, 2009 WL 160241, 6

(D.Nev.2009).

Defendants GMAC and MERS also argue that the

claim cannot apply to them because neither

was involved as the original lenders. GMAC

was only a servicer and MERS only a former

beneficiary under the Deed of Trust ... As

discussed above, in a deed of trust, the

beneficiary has the right to instigate nonjudicial foreclosure. It makes no difference

that it may be unclear who gave authority to

record the Notice of Default. There appears

to be no requirement under Section 2924 that

the actual beneficiary step forward and be

known. In the absence of any legal

requirement with respect to the possession of

the original promissory note prior to a

nonjudicial foreclosure, plaintiff’s theory

for wrongful foreclosure is without merit. 

The First Cause of Action for Declaratory Relief is

DISMISSED WITH PREJUDICE.

D. SECOND CAUSE OF ACTION.

The Second Cause of Action is for injunctive relief against

Defendant ALS, alleging that ALS is attempting to take possession

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of the subject property, which will cause Plaintiff “great and

irreparable injury in that real property is unique,” that, unless

enjoined, ALS’s wrongful conduct will cause great and irreparable

harm to Plaintiff because she will lose her real property; and

Plaintiff has no plain, adequate or speedy remedy to prevent

irreparable loss to Plaintiff “because real property is

inherently unique and it is and will be impossible for Plaintiffs

[sic] to determine the precise amount of damage Plaintiffs [sic]

will suffer.”

Defendants move to dismiss the Second Cause of Action for

injunctive relief. 

First, Defendants note that “[i]njunctive relief is a remedy

and not, in itself, a cause of action, and a cause of action must

exist before injunctive relief may be granted.” Shell Oil Co. v.

Richter, 52 Cal.App.2d 164, 168 (1942); see also McDowell v.

Watson, 59 Cal.App.4th 1155, 1159 (1997); Lomboy v. SCME Mortg.

Bankers, 2009 WL 1457738 at *7 (N.D.Cal., May 26, 2009).

Defendants assert that it is unclear what Plaintiff is

attempting to enjoin. As noted, the Subject Property has been

foreclosed. Paragraph 37 alleges that “ALS is attempting to take

possession of [the Subject Property].” Surmising that Plaintiff

may be attempting to enjoin an unlawful detainer proceeding

brought in state court to obtain possession of the Subject

Property, Defendants contend that such a claim would be barred by

the Anti-Injunction Act, 28 U.S.C. § 2283:

A court of the United States may not grant an

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injunction to stay proceedings in a State

court except as expressly authorized by Act

of Congress, or where necessary in aid of its

jurisdiction, or to protect or effectuate its

judgments.

Defendants note that the FAC alleges no facts that fall within

any of these three exceptions and, accordingly, the Court cannot

enjoin any unlawful detainer proceeding that may be proceeding in

state court.

At the hearing, Plaintiff conceded that dismissal of the

First Cause of Action negates the Second Cause of Action for

injunctive relief.

The Second Cause of Action is DISMISSED WITH PREJUDICE.

E. THIRD CAUSE OF ACTION.

The Third Cause of Action is captioned “Truth in Lending Act

Violations” and alleges:

41. Plaintiffs [sic] alleged [sic] that

SHEA, at all times relevant hereto, regularly

extended or offered to extend consumer credit

for which a finance charge is or may be

imposed and that SHEA is a creditor within

the meaning of the Truth-in-Lending Act

(TILA).

42. The underlying Property transaction

constitutes a consumer credit transaction

within the meaning of TILA.

43. Plaintiff is a consumer within the

meaning of TILA.

44. Plaintiff asserts this cause of action

as set-off in response to Defendants [sic]

foreclosure of her interest in [the Subject

Property]. As such plaintiff is not barred

by the statute of limitations.

45. As set forth above [sic], SHEA violated

the TILA by:

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a. By failing to provide the required

disclosures prior to consummation of the

transaction in violation of 15 USC § 1638(b),

and Regulation Z § 226.17(b).

b. By failing to make required disclosures

clearly and conspicuously in writing in

violation of 15 USC § 1632(a) and Regulation

Z § 226.18(m).

c. By improperly calculating the finance

charges, and double billing the finance

charges and costs.

d. By charging fees and costs and finance

charges not actually incurred or previously

paid.

f. [sic] By miscalculating the APR based on

improperly charged, calculated, and disclosed

finance charges.

46. By reasons of the above violations, SHEA

is liable to Plaintiff for twice the amount

of finance charges, actual damages to be

established at trial, attorneys fees and

costs.

47. SHEA, ALS and MERS contends [sic] the

first loan is still due and owing, while

Plaintiffs [sic] believes is properly

rescinded [sic].

48. Plaintiffs [sic] allege that they [sic]

have and are entitled to rescind the loan

transaction, pursuant to TILA since such

loans were consumer credit transaction within

the meaning of that statutes [sic], and SHEA

violated TILA. In addition to the

allegations set forth and incorporated

herein, by failing to deliver all material

disclosures, by failing to accurately

disclose the amount financed, by failing to

accurately disclose the finance charge, by

failing to disclose the annual percentage

rate.

49. Plaintiff alleges that by at least as

early as the commencement of the state court

action, SHEA, ALS and MERS were aware that

Plaintiffs [sic] desired to exercise their

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[sic] rescission rights.

50. More than twenty days have lapsed and

SHEA, ALS and MERS have not taken any action

to rescind.

51. SHEA, ALS and MERS has [sic] failed to

return any money or property to Plaintiff.

52. As a result of the aforesaid violations,

SHEA is liable to Plaintiff for:

a) Rescission of the loan transactions [sic];

b) Termination of any security interest in

Plaintiff’s property created under the loan

transaction;

c) Return of any money or property given by

Plaintiff to anyone, including SHEA, in

connection with the transaction;

d) Statutory damages of $2,000 for the

disclosure violations;

e) Statutory damages of $2,000 for SHEA’s

failure to respond properly to Plaintiff’s

request for rescission;

f) Forfeiture of the loan proceeds;

g) Actual damages in an amount to be

determined at trial;

h) Reasonable attorneys [sic]; and for such

other relief as hereinafter set forth.

Defendants move to dismiss the Third Cause of Action for

violation of TILA as barred as a matter of law.

1. Purchase Money Loan.

Defendants move to dismiss on the ground that Plaintiff

cannot rescind a purchase money loan. Regulation Z, which

implements TILA, states that “[t]he right to rescind does not

apply to ... a residential mortgage transaction.” 12 C.F.R. §

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226.15(f). Regulation Z defines a residential mortgage

transaction as “a transaction in which a mortgage, deed of trust,

purchase money security interest arising under an installment

sales contract, or equivalent consensual security interest is

created or retained in the consumer’s principal dwelling to

finance the acquisition or initial construction of that

dwelling.” 12 C.F.R. § 226.2(a)(24).

Defendants note that the Deed of Trust was recorded on

December 1, 2006 and secured a $462,550 loan from Defendant Shea. 

Also recorded on December 1, 2006 was the Grant Deed vesting

title to the Subject Property in Plaintiff. Defendants assert:

The fact that these documents were recorded

on the same day, in the same county

recorder’s office only a few documents apart

demonstrates that the loan was used to enable

Plaintiff to purchase the Subject Property. 

Accordingly, this is a residential mortgage

transaction and, thus, under 15 U.S.C. §

1632(e)(1), even if there was a violation of

TILA, there is no right to rescission. 

Plaintiff responded in her opposition brief that the FAC is

silent on what type of loan Plaintiff received and, thus, she is

unable to respond whether the underlying loan was a residential

mortgage transaction. At the hearing, Plaintiff’s counsel stated

that he did not know the purpose of the loan when he filed this

action but has since spoken to Plaintiff and concedes that the

loan was a “residential mortgage transaction” within the meaning

of Regulation Z. The statement in the opposition brief and

Counsel’s representation at the hearing are disingenuous given

the allegations in Paragraphs 21 and 23 of the FAC. Nonetheless,

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given Plaintiff’s concession, the Third Cause of Action is

DISMISSED WITH PREJUDICE to the extent it seeks rescission under

TILA.5

2. Right to Rescind Expired.

Assuming arguendo that Plaintiff has a rescission right

under TILA, Defendants argue that the rescission right expired

when the property was sold at foreclosure on July 8, 2009.

See Ibarra v. Loan City, 2010 WL 415284 at *7 (S.D.Cal., Jan. 27,

2010):

[P]ursuant to Section 1635(f), Plaintiff’s

right to rescind expired on September 8, 2009

when the Property was sold at the trustee’s

sale, and Plaintiff does not allege the

Complaint was served on Aurora before the

foreclosure sale took place. Section 1635(f)

provides that the right of rescission expires

at the latest, ‘three years after the date of

consummation of the transaction or upon the

sale of the property, whichever occurs

first.’ 

See also Hallas v. Ameriquest Mortg. Co., 406 F.Supp.2d 1176,

1183 (D.Or.2005).

Plaintiff responds that Section 1635(f) does not apply when

the validity of the foreclosure sale is in dispute, citing Young

v. 1 American Financial Services, 977 F.Supp. 38, 39 st

(D.D.C.1997)(denying motion to dismiss TILA rescission claim when

validity of foreclosure sale under local law in dispute). 

Plaintiff, citing Lancaster Sec. Inv. Corp. v. Kessler, 159

This conclusion makes unnecessary resolution of Defendants’ 5

alternative contention that Plaintiff’s right of rescission under

TILA expired when the Subject Property was sold at foreclosure on

July 8, 2009.

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Cal.App.2d 649, 652 (1958), asserts:

Under California law, the only requirements

of notice of sale essential to the validity

of a sale under a power contained in a deed

of trust are those expressly and specifically

prescribed by the terms of the instrument and

by the provisions of the applicable statutes.

2. Claim for Damages Time-Barred.

Defendants move to dismiss Plaintiff’s claim for damages

under TILA as time-barred. 

A plaintiff seeking damages under TILA must file suit within

one year of the date of the alleged violation. 15 U.S.C. §

1640(e). As stated in Meyer v. Ameriquest Mortg. Co., 342 F.3d

899, 902 (9 Cir.2003): th

The failure to make the required disclosures

occurred, if at all, at the time the loan

documents were signed. The Meyers were in

full possession of all information relevant

to the discovery of a TILA violation and a §

1640(a) damages claim on the day the loan

papers were signed. The Meyers have produced

no evidence of undisclosed credit terms, or

of fraudulent concealment or other action on

the part of Ameriquest that prevented the

Meyers from discovering their claim.

Plaintiff responds that her TILA claim is pled defensively

to reduce or set-off the amount she owes Defendant and alleges

that the TILA violation and the creditor’s debt arose from the

same transaction. Therefore, she asserts, the one year statute

of limitations is not applicable. 

Plaintiff’s contention is without merit. 15 U.S.C. §

1640(e) provides in relevant part:

This subsection does not bar a person from

asserting a violation of this subchapter in

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an action to collect the debt which was

brought more than one year from the date of

the occurrence of the violation as a matter

of defense by recoupment or set-off in such

action, except as otherwise provided by State

law. 

In Carillo v. CitiMortgage, Inc., 2009 WL 3233534 at *3

(C.D.Cal., Sept. 30, 2009), the District Court held:

CITI also argues that Plaintiffs cannot state

a cause of action under TILA’s recoupment

exception. The one year statute of

limitations does not apply to recoupment or

set-off claims that are asserted as a defense

to ‘an action to collect debt.’ 15 U.S.C. §

1640(e). In paragraph 11 of the Complaint,

Plaintiffs purport to assert recoupment

defensively in response to a non-judicial

foreclosure proceeding. An foreclosure

action is not an ‘action to collect debt’

within the meaning of the recoupment

exception. Plaintiff’s affirmative use of

the recoupment claim is improper and exceeds

the scope of the TILA exception. 

See also Lyman v. Loan Correspondents, Inc., 2009 WL 3757398 at

*2 (C.D.Cal., Nov. 6, 2009):

However, ‘non-judicial foreclosures are not

“actions “ as contemplated by TILA.’ Ortiz

v. Accredited Home Lenders, Inc., 639

F.Supp.2d 1159, 1159 (S.D.Cal.2009). Both §

1640(e) and California law define an action

in this context as a court proceeding. Id.

Because Loan Correspondents has not brought

an action against the Lymans in court, the

Lymans’ ‘affirmative use of the claim is

improper and exceeds the scope of the TILA

exception.’ Id. (quoting Amaro v. Option One

Mortgage Corp., 2009 WL 103302, at *3

(C.D.Cal., Jan. 14, 2009.

See also Horton v. California Credit Corp., 2009 WL 2488031 at

*11 (S.D.Cal.2009)(“Because Defendant has not brought any

judicial ‘action to collect a debt,’ Plaintiffs’ recoupment claim

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has not properly been asserted as a defense.”); Lima v. Wachovia

Mortg. Corp., 2010 WL 1223234 at *6 (N.D.Cal., March 25,

2010)(“Since Lima’s lawsuit is not a defensive action, she cannot

bypass the one-year statute of limitations by treating her claim

as a recoupment defense”). 

The Third Cause of Action is DISMISSED WITH PREJUDICE to the

extent it seeks damages for the alleged violations of TILA.

F. FOURTH CAUSE OF ACTION.

The Fourth Cause of Action is captioned “Cancellation of

Instrument” and alleges:

54. A written instrument that purports to be

a Deed of Trust executed by plaintiff is

presently in existence and under ALS’s

control.

55. The instrument, although apparently

valid on its face, is voidable in that there

is no enforceable underlying promissory note

for the deed of trust to secure.

56. As a result, any obligation owed by

PARCRAY to ALS is not secured by the

underlying real property.

57. By this complaint, plaintiffs [sic]

notify ALS of plaintiff’s intent to cancel

the deed of trust attached as Exhibit A.

Defendants move to dismiss the Fourth Cause of Action for

cancellation of legal instrument.

Defendants assert that the allegation that there is “no

enforceable underlying promissory note for the deed of trust to

secure” is conclusory and contradicted by the allegation in

Paragraphs 5 and 19 that “Plaintiff purportedly entered into a

loan repayment and security agreement on or about December 1,

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2006 with Defendant SHEA ..., which required Plaintiff to repay a

loan of $462,550.00 to SHEA” and “Plaintiff is willing and able

to tender the face value of the note minus equitable set off to

the true holder of the underlying promissory note whom plaintiff

believes to be Shea Mortgage.”

It is apparent that Plaintiff’s allegation in the Fourth

Cause of Action is based on the premise that the original

promissory note must be produced before a non-judicial

foreclosure can proceed. As noted, Plaintiff now concedes that

this contention is without legal merit. See, e.g., Chilton v.

Federal Nat. Mortg. Ass’n, 2009 WL 5197869 (E.D.Cal., Dec. 23,

2009) and cases cited therein.

California Civil Code § 3412 provides:

A written instrument, in respect to which

there is a reasonable apprehension that if

left outstanding it may cause serious injury

to a person against whom it is void or

voidable, may, upon his application, be so

adjudged, and ordered to be delivered up or

cancelled.

Defendants assert that the FAC fails to establish that the Deed

of Trust is void or voidable, or that the Deed of Trust must be

cancelled to avoid serious injury to Plaintiff. The foreclosure

sale occurred on July 8, 2009, before this action was commenced. 

Therefore, Defendants contend, Plaintiff is no longer obligated

to make payments under the promissory note or Deed of Trust. In

addition, in order to cancel a voidable instrument, Plaintiff

must restore to the beneficiary the amounts she borrowed pursuant

to the promissory note and Deed of Trust. See Star Pacific

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Investments, Inc. v. Oro Hills Ranch, Inc., 121 Cal.App.3d 447,

457 (1981). Defendants assert that Plaintiff has not repaid or

offered to repay the amount loaned. See discussion supra.

The Fourth Cause of Action is DISMISSED WITH LEAVE TO AMEND

to state equitable or legal grounds for the claim for

cancellation of instrument within the purview of Rule 11, Federal

Rules of Civil Procedure. If Plaintiff proceeds to amend the

Fourth Cause of Action, Plaintiff must allege the tender of the

loan amount or the present ability to tender the loan amount.

 CONCLUSION

For the reasons stated:

1. Defendants’ motions to dismiss are GRANTED WITH

PREJUDICE as to the First, Second and Third Causes of Action and

WITH LEAVE TO AMEND as to the Fourth Cause of Action;

2. Plaintiff shall file a Second Amended Complaint within

fifteen (15) days of electronic service of this Memorandum

Decision and Order. Failure to timely comply will result in the

dismissal of this action. If the Second Amended Complaint is

timely filed, Defendants shall respond within fifteen (15) days

thereafter.

IT IS SO ORDERED.

Dated: April 23, 2010 /s/ Oliver W. Wanger 

668554 UNITED STATES DISTRICT JUDGE

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