PREEMPTIVE LAWSUIT TO ENJOIN THREATENED FORECLOSURE AND QUIET TITLE IN CALIFORNIA GETS THE BOOT
In a continuing series of defeats for California homeowners the Robinson case shot down another attempt at preventing a “pretender lender” from foreclosing. (Robinson v. Countrywide Home Loans, 130 Cal.Rptr.3d 811, Court of Appeal, Fourth District, Division 2, California (Sept. 12, 2011).
Some homeowners in California continue to challenge MERS and their role in the foreclosure process and “wrongful initiation of foreclosure.” These types of suits may also seek to quiet title. Here is a recent case that denied the right to pursue that legal theory. Here are the facts of the case as discussed in the opinionThe following facts are alleged in plaintiffs’ complaint:In October 2007, plaintiffs borrowed $380,000 from lender SBMC Mortgage to finance the purchase of real estate. In connection with that transaction, they executed a promissory note, which was secured by a deed of trust. The deed of trust identifies SBMC Mortgage as the lender and identifies T.D. Service Company as the trustee. It identifies MERS as “acting solely as a nominee for Lender and Lender’s successors and assigns,” and states that “MERS is the beneficiary under this Security Instrument.” The deed of trust further states that “Borrower [i.e., plaintiffs] 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 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. In December 2008 and January 2009, Countrywide, identifying itself as a debt collector and the servicer of the loan on the noteholder’s behalf, notified plaintiffs that their loan was delinquent. Plaintiffs’ attorney wrote to Countrywide requesting information concerning the loan, including a copy of the note, documents evidencing any sale, transfer, or assignment of the note, and a beneficiary statement and payoff demand statement pursuant to Civil Code section 2943. Countrywide requested more time to respond but did not provide the requested documents before notifying plaintiffs, on February 27, 2009, that their loan was in default and had been referred to Countrywides foreclosure management committee for review. On February 11, 2009, however, ReconTrust, purporting to act as agent for the beneficiary of the deed of trust, had recorded a notice of default and election to sell the property under the deed of trust, stating that plaintiffs were in default and that the present beneficiary had elected to cause the property to be sold. Despite further requests, Countrywide failed to identify the current beneficiary on the note and deed of trust.Plaintiffs alleged that their promissory note was “sold and resold” on the secondary mortgage market, and that as a result, it had become difficult or impossible to ascertain the actual owner of the beneficial interest in the note. They alleged that the identity of the person or entity that currently holds an ownership interest is unknown. They alleged that because Countrywide failed to comply with its statutory duty to provide them with the documents they requested, they did not know to whom they owed the obligation to repay the loan. They alleged on information and belief that “a person purporting to be the rightful current beneficiary, by virtue of a purported assignment from MERS,” authorized an agent to cause the notice of default and election to sell to be recorded. They alleged on information and belief that SBMC did not assign the note to MERS and did not authorize MERS or any other person to assign the note to anyone on its behalf. They alleged on information and belief that the person or entity who directed the initiation of the foreclosure process was not the note’s rightful owner and was acting without the rightful owner’s authority.
On or about June 1, 2010, plaintiffs filed a second amended complaint, alleging wrongful initiation of foreclosure (first cause of action), violation of Civil Code section 2943, subdivision (b)(1) (fourth cause of action) and unfair business practices (fifth cause of action). Plaintiffs also sought declaratory relief (second cause of action)and to quiet title(third cause of action).
The California court of Appeals disagreed with Plaintiff and in citing the Gomes case held:“Plaintiffs allege in their first and second causes of action that the entity which initiated foreclosure proceedings had no legal authority to do so because it was not either the current beneficiary of the deed of trust or the agent of the current beneficiary.Plaintiffs contend that section 2924, subdivision (a)(1)(C) “by necessary implication” provides that a borrower who is subject to foreclosure under a deed of trust may file an action to challenge the foreclosing party’s standing to do so. The balance of their argument is that MERS had no legal authority to initiate a foreclosure. The issues plaintiffs raise concerning MERS and the securitized mortgage market were recently discussed in Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 121 Cal.Rptr.3d 819 (Gomes ), review denied May 18, 2011. There, the court concluded that the plaintiff failed to identify a legal basis for an action to determine whether MERS had authority to initiate a foreclosure proceeding. (Id. at pp. 1154–1157, 121 Cal.Rptr.3d 819.) We agree with the Gomes court that the statutory scheme (§§ 2924–2924k) does not provide for a preemptive suit challenging standing. Consequently, plaintiffs’ claims for damages for wrongful initiation of foreclosureand for declaratory relief based on plaintiffs’ interpretation of section 2924, subdivision (a), do not state a cause of action as a matter of law. (Gomes, supra, at pp. 1152, 1154–1157, 121 Cal.Rptr.3d 819.)Moreover, even if such a statutory claim were cognizable, the second amended complaint does not state facts upon which such a claim could be based as to MERS and Countrywide. The complaint alleges that foreclosure proceedings were initiated by ReconTrust, not by Countrywide or MERS. It does not allege that ReconTrust purported to act as an agent for MERS or for Countrywide. Rather, it alleges that ReconTrust purported to act as agent for an unnamed beneficiary which purported to have been assigned the note and deed of trust by MERS (i.e., the beneficiary is alleged to be an entity other than MERS). The notice of default is not contained in the record, and the complaint does not state the name of the beneficiary on whose behalf ReconTrust purported to act. Accordingly, even if a statutory action for damages or for declaratory relief were available to challenge the standing of the foreclosing entity, the second amended complaint does not allege any facts upon which such an action could be based with respect to Countrywide or MERS.FINAL DISPOSITIONThe judgment was affirmed. Costs on appeal were awarded to defendants Countrywide Home Loans, Inc. and Mortgage Electronic Registration Systems, Inc. Again, the Courts are not interested in allowing defaulting Plaintiff homeowners to challenge legal standing to foreclose (essentially a variation of the “produce the note“) defense in a civil non-judicial foreclosure setting.