Source: https://timothymccandless.wordpress.com/2014/01/
Timestamp: 2019-04-21 22:18:18+00:00

Document:
APPEAL from the judgments of the Superior Court of Los Angeles County. Amy D. Hogue, Judge. Affirmed.
Brifman Law Corporation and Mark Brifman for Plaintiff and Appellant.
Bryan Cave, Glenn J. Plattner, and Curt R. Wiele for Defendants and Respondents.
Plaintiff and appellant Dennis Ricky Holmes seeks reversal of the judgment for defendants and respondents HSBC Bank USA National Association (HSBC) and Recontrust Company, N.A. (Recontrust) after the court sustained a demurrer without leave to amend to the first amended complaint alleging quiet title, wrongful foreclosure, breach of contract and cancellation of instrument.
Plaintiff obtained a $1 million real estate purchase loan secured by a deed of trust against property in Los Angeles. The deed of trust named Recontrust as the trustee. Plaintiff defaulted in payment of the loan. Recontrust initiated foreclosure proceedings and conducted a nonjudicial foreclosure sale of plaintiff’s home to HSBC. Plaintiff does not allege tender of any part of the amount due and continued in possession of the property for nearly three years until HSBC obtained an unlawful detainer judgment against him.
Because we find the first amended complaint did not state facts showing any wrongful conduct by defendants or any entitlement to relief from the completed foreclosure, and plaintiff does not seek leave to amend and does not argue the defects could be cured by amendment, we affirm the judgment dismissing the action, as well as the judgment of possession in the unlawful detainer proceeding.
Plaintiff sued Recontrust, identified in the deed of trust as the trustee securing his $1 million loan, and HSBC, to which Recontrust issued a trustee’s deed upon sale. Plaintiff had obtained a real estate purchase loan of $1 million from Countrywide Home Loans, Inc., secured by a deed of trust against the property that was recorded on October 13, 2006. The deed of trust identified plaintiff as the borrower, Countrywide as the lender, Recontrust as the trustee, and MERS (Mortgage Electronic Registration Systems, Inc.) as the beneficiary and nominee to act for the lender and lender’s successors and assigns.
Plaintiff admits the lender had a valid lien on the property pursuant to the deed of trust. Plaintiff admits Recontrust was the trustee named in the deed of trust. Plaintiff admits the deed of trust was duly recorded on October 13, 2006. The notice of default was recorded by Recontrust on March 27, 2009, “as an agent for the Beneficiary.” The notice of default identified MERS as the beneficiary, and advised plaintiff to contact MERS to arrange for payment to stop the foreclosure. Plaintiff did not deny he defaulted on the note or allege that he tendered any part of the delinquent payment that was due. Plaintiff admits that on April 5, 2010, Recontrust conducted a nonjudicial foreclosure sale of the property and issued a trustee’s deed upon sale in favor of HSBC. At oral argument, plaintiff’s counsel confirmed that plaintiff does not allege there was any irregularity in the conduct of the nonjudicial foreclosure sale.
The crux of plaintiff’s complaint is that only the lender, as holder of the note, is authorized to “commence, continue or consummate a foreclosure of the Deed of Trust albeit acting through the good offices of the Trustee.” The sole basis for the claim that only the lender can foreclose is one sentence buried in paragraph 22 of the deed of trust, a single sentence which plaintiff contends should be construed in isolation from all the other provisions in the deed of trust.
Paragraph 22 consists of three paragraphs. The second paragraph begins with this sentence: “If Lender invokes the power of sale, Lender shall execute or cause Trustee to execute a written notice of the occurrence of an event of default and of Lender’s election to cause the Property to be sold.” Plaintiff alleges this means “the Lender (or its successors or assigns) is the only party to the Loan that can declare it in default or invoke the power of sale therein. The Loan has not been declared in default, nor has the power of sale been invoked, by the Lender.” Plaintiff alleges, therefore, since no named defendant was entitled to any money from plaintiff, plaintiff was not required to tender any funds on his delinquent loan.
In effect, plaintiff contends this one sentence in the deed of trust obliterates and overrides all other provisions of the deed of trust. Paragraph 22 appears on pages 13 and 14 of the standardized, single-spaced deed of trust (consisting of 25 pages, including all riders and exhibits thereto). We recognize, of course, that paragraph 22, in its entirety, contains significant provisions of the deed of trust, because it describes the rights and duties of the parties in the event of acceleration of payments following borrower’s breach of any provision. However, nothing in paragraph 22 expressly or impliedly negates other provisions of the deed of trust.
Most notably, the very first substantive provisions of the deed of trust – appearing at page three, immediately after the “Definitions” – are the provisions describing the “Transfer of Rights in the Property.” The first sentence under the heading “Transfer of Rights in the Property” identifies MERS as the beneficiary nominated by the lender to act for the lender and its successors and assigns. The second sentence states the deed of trust secures to the lender repayment of the loan and borrower’s performance under the note and deed of trust. The third sentence states that, for the purpose of securing borrower’s repayment, borrower irrevocably grants and conveys the property to the trustee (Recontrust) with the power of sale of the property. The next provisions include a legal description of the property. The legal description is followed by provisions empowering MERS, as nominee for the lender and lender’s successors and assigns, with the right to exercise any or all of the interests granted by the borrower in the deed of trust, including the right to foreclose and sell the property.
These standardized provisions in deeds of trust have been consistently interpreted by the courts as authorizing MERS to (1) invoke the power of sale upon a borrower’s default in payment, and to (2) cause the trustee to give notice of default and conduct a foreclosure sale.
We shall only briefly discuss below some of the authorities that establish defendants acted in conformance with the nonjudicial foreclosure statutes. We note that the cases cited below are also cited with approval in The Rutter Group’s California Practice Guide on Real Property Transactions under the topic heading “Authority of lender’s (beneficiary’s) nominee to initiate foreclosure proceedings may not be challenged.” (Greenwald et al., Cal. Practice Guide: Real Property Transactions (The Rutter Group 2013) ¶¶ 6:524e, 6:524f, p. 6-96.10 et seq. (rev. #1, 2013).) In other words, the law is clear that plaintiff’s challenge is without any support in statute, case law, or scholarly writing.
These cases recognized a wrongful foreclosure claim may rest on allegations that the party initiating foreclosure was not the current beneficiary under the deed of trust because the lender had sold the note in a pool of mortgage-backed securities before the borrower’s default, and no assignment had been recorded before the new beneficiary invoked the power of sale. In those cases, the courts could not determine as a matter of law whether the defendants had any beneficial interest in the deed of trust when they acted to foreclose. These cases do not apply here because plaintiff alleged “there has never been an assignment of the note to any Defendant named herein.” Nowhere in the first amended complaint does plaintiff allege his note was part of a mortgage pool held in trust as collateral for a mortgage-backed security that was sold in the secondary mortgage market. And it may be determined as a matter of law from the judicially noticed deed of trust and notice of default that MERS was named in plaintiff’s deed of trust as the lender’s beneficiary and Recontrust was named as trustee.
And, while plaintiffs may sue for misconduct occurring during nonjudicial foreclosures, the court in Gomes concluded that they may not sue to impose additional requirements on parties initiating foreclosures. (Gomes, supra, 192 Cal.App.4th at p. 1154, fn. 5.) Like the plaintiff in Gomes, plaintiff here does not seek a remedy for any misconduct in the foreclosure sale. Instead, he is seeking to impose the additional requirement that the party initiating the foreclosure (such as MERS or the trustee) demonstrate in court that the lender invoked the power of sale after plaintiff defaulted on his loan. We find, like the court in Gomes, that for a court to impose such a requirement would be inconsistent with the policy behind the nonjudicial foreclosure statutes. “By asserting a right to bring a court action to determine whether the owner of the Note has authorized its nominee to initiate the foreclosure process, Gomes is attempting to interject the courts into this comprehensive nonjudicial scheme. As Defendants correctly point out, Gomes has identified no legal authority for such a lawsuit. Nothing in the statutory provisions establishing the nonjudicial foreclosure process suggests that such a judicial proceeding is permitted or contemplated.” (Id. at p. 1154.) Plaintiff here has also failed to identify any legal authority or other rational basis for us to find that only the lender could invoke the power of sale.
The courts have rejected the analogous argument that the holder in due course provisions of the Commercial Code apply to nonjudicial foreclosure cases. (See, e.g., Debrunner, supra, 204 Cal.App.4th at pp. 440-441.) The Debrunner court’s analysis carefully addressed the contention that plaintiff asserts here, too, that recent bankruptcy cases support the notion that we should meld the requirements of the Commercial Code together with the comprehensive foreclosure statutes. We see no reason to add to the Debrunner court’s analysis rejecting that meritless argument.
Plaintiff’s argument that one sentence buried in paragraph 22 of the deed of trust somehow negates the express and unambiguous provisions empowering MERS and the trustee to act for the lender to secure repayment of the borrower’s debt is bereft of any authority in law or equity. (See Civ. Code, § 1641 [“The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other”]; Thompson v. Toll Dublin, LLC (2008) 165 Cal.App.4th 1360, 1370 [courts interpret contracts as a whole and in context, rather than interpreting provisions in isolation]; Powers v. Superior Court (1987) 196 Cal.App.3d 318, 321-322 [when the two provisions in a contract do not conflict, the court will give both effect].) Because plaintiff’s claims for quiet title, wrongful foreclosure, breach of contract, and cancellation of instrument all flow from this flawed theory, they each fail. Plaintiff’s cause of action for breach of contract also fails for the additional reason that plaintiff has not alleged a contract with these defendants.
The judgments are affirmed. Respondents are to recover their costs on appeal.
When appellant Dennis Ricky Holmes borrowed $1 million from Countrywide Home Loans, Inc., he gave Countrywide a promissory note. To secure repayment of his debt to Countrywide, he also signed a deed of trust on his Los Angeles home. As of the filing of his complaint, Holmes alleged that now-defunct Countrywide had not assigned or transferred his promissory note or deed of trust to anyone, including respondent HSBC Bank USA, N.A. or J.P. Morgan Alternative Loan Trust 2007-A1 for which HSBC is trustee. Thus, as the record stands in reviewing a demurrer, lender Countrywide appears to continue to own appellant’s note and the security interest under which he owes payments.
According to the first amended complaint, in 2010, the trustee on the deed of trust, respondent Recontrust Company NA, conducted a nonjudicial foreclosure sale of Holmes’s house. Although Countrywide had neither declared Holmes in default nor invoked the trust deed’s power of sale, Recontrust issued a Trustee’s Deed Upon Sale following the foreclosure sale to respondent HSBC as trustee for J.P. Morgan Alternative Loan Trust 2007-A1. The record does not explain – and on demurrer we cannot resolve – how or why J.P. Morgan Alternative Loan Trust 2007-A1 claims an interest in Holmes’s mortgage, but I am willing to hazard a guess that it might have something to do with the slicing, dicing, and securitizing of mortgages that was commonplace before Wall Street’s meltdown five years ago, a meltdown that led to Countrywide’s demise and its absorption by Bank of America. If this case were permitted to go to trial, presumably the true facts would come out as to the HSBC/JP Morgan connection with this loan and whether HSBC/JP Morgan was anything more than a purchaser after foreclosure.
I believe the trial court accurately described the state of the pleadings but erred in sustaining the demurrer.
But the nonjudicial foreclosure statutory scheme, which courts have sustained by largely rejecting homeowners’ attempts to encumber the system with additional procedural safeguards beyond those contained in the foreclosure statutes, was written in a bygone era, and that was then and this is now. The lending/foreclosure process which is now playing out in the courts and elsewhere bears little resemblance to what happened with the mortgages of our grandparents. The common law evolves to meet new challenges from new circumstances. In a quip often attributed, perhaps incorrectly, to the renowned economist John Maynard Keynes, “When the facts change, I change my mind. What do you do sir?” I believe we have reached the time to make clear a homeowner’s right to challenge a foreclosure based on the foreclosing party’s absence of authority from the beneficiary of the homeowner’s deed of trust.
Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1378-1379: Deutsche Bank was not entitled to summary judgment on a wrongful foreclosure claim because it failed to show a chain of ownership that would establish it was the true beneficiary under the deed of trust.
Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at pages 973-974: The court permitted a cause of action for wrongful foreclosure where a homeowner alleged that Chase lacked authority to foreclose because Washington Mutual securitized the subject loan, divesting itself of any interest, prior to transferring its beneficial interest to Chase.
Sacchi v. Mortgage Elec. Registration Sys., supra, 2011 U.S.Dist. Lexis 68007, *16-21: A homeowner stated a cause of action for wrongful foreclosure where MERS transferred a lender’s beneficial interest in a deed to the lender’s successor after the successor executed without authority a substitution of trustee, making the new trustee’s notice of sale invalid.
Ohlendorf v. Am. Home Mortg. Servicing (E.D. Cal. 2010) 279 F.R.D. 575, 583: Permitted a homeowner to pursue a claim for wrongful foreclosure where the foreclosing party may have relied on a series of backdated transfers of a deed of trust’s beneficial interest to pursue foreclosure. Documents showed that MERS was beneficiary under the deed of trust at the time foreclosure proceedings began, but the notice of default listed Deutsche Bank as beneficiary and a mortgage servicer as trustee. To rectify the “taint” of the inconsistent recorded documents, MERS filed a backdated assignment of the beneficial interest to the mortgage servicer, and 11 seconds later the mortgage servicer recorded a backdated assignment of the deed of trust to Deutsche.
Javaheri v. JP Morgan Chase Bank, N.A. (C.D.Cal. June 2, 2011, No. CV10-08185 ODW (FFMx)) 2011 U.S.Dist. Lexis 62152, *12-14: A homeowner stated a claim for wrongful foreclosure against J.P. Morgan Chase by alleging that lender Washington Mutual sold the homeowner’s promissory note to an investment pool, which thereafter transferred the promissory note to another investment pool, preventing J.P. Morgan Chase from obtaining the note when it acquired Washington Mutual’s assets because the note was no longer owned by Washington Mutual at the time of the assignment.
I agree with the majority that these cases describe situations not completely found in the present case. That is not my point in citing them. These authorities are useful because they spell out the framework by which courts should analyze carefully lawsuits challenging foreclosures.
Here, Holmes alleges that MERS can act only when the lender (or the lender’s successor) who owns the note invokes the power of sale. Thus, if respondent HSBC was a successor to Countrywide and owned Holmes’s promissory note, either for itself or as trustee for J.P. Morgan Loan Trust, Holmes concedes MERS may act for HSBC. The central allegation of Holmes’s complaint is that HSBC does not own Holmes’s promissory note because Countrywide did not assign, sell, or transfer it to anyone. Thus, Holmes alleges, HSBC was an interloper that had no legal interest or claim to his note, his deed of trust, or his home. It is not a far-fetched possibility that HSBC indeed does not own Holmes’s promissory note – at this juncture, HSBC has not demonstrated to the contrary – and that Holmes does not owe his debt or repayment to HSBC. (Accord Miller v. Carrington Mortgage Services (N.D.Cal. Sept. 19, 2013, No. C-12-2282 EMC) 2013 U.S.Dist. Lexis 165957, *16-17 [permitted challenge to foreclosure based on break in the chain of title of the loan and deed of trust].) This appeal is from a demurrer. Whether HSBC or anyone else (other than Countrywide) had the authority to direct Recontrust (either directly or through MERS) to foreclose cannot be resolved on the face of Holmes’s complaint or by taking judicial notice of a promissory note and deed of trust in which HSBC’s name does not appear. Accordingly, the trial court erred in sustaining the demurrer to Holmes’s cause of action for wrongful foreclosure.
Holmes alleges Recontrust Company N.A. lacked authority to foreclose on his home. Because Holmes has stated facts, subject to development through discovery and proof at trial, sufficient to support a cause of action for wrongful foreclosure, I would reverse the trial court’s order sustaining the demurrer.

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