Gomes v. Countrywide Home Loans, Inc.

• Citation: 11 Cal. Daily Op. Serv. 2322,121 Cal.Rptr.3d 819,192 Cal.App.4th 1149,2011 Daily Journal D.A.R. 2
• Decision Date: 18 February 2011
• Docket Number: No. D057005.,D057005.
• Court: California Court of Appeals
• Parties: Jose GOMES, Plaintiff and Appellant, v. COUNTRYWIDE HOME LOANS, INC., et al., Defendants and Respondents.

192 Cal.App.4th 1149

121 Cal.Rptr.3d 819

11 Cal. Daily Op. Serv. 2322

2011 Daily Journal D.A.R. 2681

Jose GOMES, Plaintiff and Appellant,

v.COUNTRYWIDE HOME LOANS, INC., et al., Defendants and Respondents.

No. D057005.

Court of Appeal, Fourth District, Division 1, California.

Feb. 18, 2011.

**821 Gersten Law Group and Ehud Gersten, San Diego, for Plaintiff and Appellant.

Severson & Werson, Jan T. Chilton, Philip Barilovits and Jon D. Ives, San Francisco, for Defendants and Respondents.

IRION, J.

*1150 Jose Gomes appeals from a judgment entered following the trial court's order sustaining, without leave to amend, a demurrer filed by defendants Countrywide Home Loans, Inc. (Countrywide); Mortgage Electronic Registration Systems, Inc. (MERS); and ReconTrust Company, N.A. (ReconTrust) (collectively "Defendants").

As we will explain, we conclude that the trial court properly sustained the demurrer without leave to amend.

*1151 I

FACTUAL AND PROCEDURAL BACKGROUND

In February 2004 Gomes borrowed $331,000 from lender KB Home Mortgage Company to finance the purchase of real estate. In connection with that transaction, he executed a promissory note (the Note), which was secured by a deed of trust. The deed of trust identifies KB Home Mortgage Company as the "Lender" and 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." ¹

The role of MERS is central to the issues in this appeal. As case law explains, "MERS is a private corporation that administers the MERS System, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Through the MERS System, MERS becomes the mortgagee of record for participating members through assignment of the members' interests to MERS. MERS is listed as the grantee in the official records maintained at county register of deeds offices. The lenders retain the promissory notes, as well as the servicing rights to the mortgages. The lenders can then sell these interests to investors without having to record the transaction in the public record. MERS is compensated for its services through fees charged to participating MERS members." ( Mortgage Elec. Registration Sys. v. Nebraska Dept. of Banking and Fin. (2005) 270 Neb. 529, 530, 704 N.W.2d 784, 785.) "A side effect of the MERS system is that a transfer of an interest in a mortgage loan between two MERS members is unknown to those outside the MERS system." ( Jackson v. Mortgage Elec. Registration Sys., Inc. (Minn.2009) 770 N.W.2d 487, 491.)

The deed of trust that Gomes signed states that "Borrower [i.e., Gomes] 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...."

**822 Gomes defaulted on his loan payments, and he was mailed a notice of default and election to sell—recorded on March 10, 2009—which initiated a nonjudicial foreclosure process. The notice of default was sent to Gomes by ReconTrust, which identified itself as an agent for MERS. Accompanying the *1152 notice of default was a declaration signed by an employee of Countrywide, which apparently was acting as the loan servicer.²

In May 2009 Gomes filed a lawsuit against Countrywide, MERS and ReconTrust, alleging several causes of action and attaching as exhibits the deed of trust and the notice of default.

The only causes of action at issue in this appeal are the first and second causes of action, which are asserted against all Defendants.³

The first cause of action is titled "Wrongful Initiation of Foreclosure." In that cause of action, Gomes states that he "does not know the identity of the Note's beneficial owner"—as he believes that KB Home Mortgage Company sold it on the secondary mortgage market. He alleges on information and belief that "the person or entity who directed the initiation of the foreclosure process, whether through an agent of MERS or otherwise, was neither the Note's rightful owner nor acting with the rightful owner's authority." In short, the first cause of action alleges, on information and belief, that MERS did not have authority to initiate the foreclosure because the current owner of the Note did not authorize MERS to proceed with the foreclosure. As a remedy, the first cause of action states that Gomes seeks damages in an amount "not less than $25,000." ⁴

The second cause of action seeks declaratory relief on the issue of whether "[Civil Code section 2924, subdivision (a) ] allows a borrower, before his or her property is sold, to bring a civil action in order to test whether the person electing to sell the property is, or is duly authorized to so by, the owner of a beneficial interest in it." Although designated a cause of action for declaratory relief, the second cause of action appears to serve simply as a legal argument in support of the first cause of action. Specifically, the second cause of action alleges that section 2924, subdivision (a) provides the legal authority for Gomes to assert the claim he has made in the first cause of action, namely that MERS lacks the authority to initiate the foreclosure process because it was not authorized to do so by the owner of the Note.

*1153 Defendants filed a demurrer. Demurring to the first cause of action, Defendants argued, among other things, that (1) to maintain a cause of action for wrongful foreclosure, Gomes must allege that he is able to tender the full amount due under the loan; (2) California's nonjudicial foreclosure statute sets forth an exhaustive framework that does not provide for the type of relief that Gomes seeks; (3) the terms of the deed of trust authorize **823 MERS to initiate a foreclosure proceeding; and (4) if Gomes is arguing that "he is entitled to avoid foreclosure until a defendant has produced the note," such a claim has been uniformly rejected. Demurring to the second cause of action for declaratory relief, Defendants argued that it was "nothing more than a repeat of the legal theory" asserted in the first cause of action and should be rejected on the same basis.

The trial court sustained the demurrer, without leave to amend, and entered judgment in favor of Defendants.

II

DISCUSSION

A. Standard of Review

" 'On appeal from an order of dismissal after an order sustaining a demurrer, our standard of review is de novo, i.e., we exercise our independent judgment about whether the complaint states a cause of action as a matter of law.' " ( Los Altos El Granada Investors v. City of Capitola (2006) 139 Cal.App.4th 629, 650, 43 Cal.Rptr.3d 434.) "A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the court acted on that ground." ( Carman v. Alvord (1982) 31 Cal.3d 318, 324, 182 Cal.Rptr. 506, 644 P.2d 192.) In reviewing the complaint, "we must assume the truth of all facts properly pleaded by the plaintiffs, as well as those that are judicially noticeable." ( Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814, 107 Cal.Rptr.2d 369, 23 P.3d 601.)

Further, "[i]f the court sustained the demurrer without leave to amend, as here, we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment.... If we find that an amendment could cure the defect, we conclude that the trial court abused its discretion and we reverse; if not, no abuse of discretion has occurred.... The plaintiff has the burden of proving that an amendment would cure the defect." ( Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081, 6 Cal.Rptr.3d 457, 79 P.3d 569, citations omitted ( Schifando ).) "[S]uch a showing can be *1154 made for the first time to the reviewing court...." ( Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711, 113 Cal.Rptr.2d 399, citation omitted.)

B. The Demurrer Was Properly Sustained

1. Gomes Has Not Identified a Legal Basis for an Action to Determine Whether MERS Has Authority to Initiate a Foreclosure Proceeding

California's nonjudicial foreclosure scheme is set forth in Civil Code sections 2924 through 2924k, which "provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust." ( Moeller v. Lien (1994) 25 Cal.App.4th 822, 830, 30 Cal.Rptr.2d 777 ( Moeller ).) "These provisions cover every aspect of exercise of the power of sale contained in a deed of trust." ( I.E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 285, 216 Cal.Rptr. 438, 702 P.2d 596.) "The purposes of this comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser." ( Moeller, at p. 830, 30 Cal.Rptr.2d 777.) "Because of the exhaustive nature of this scheme, California appellate **824 courts have refused to read any additional requirements into the non-judicial foreclosure statute." ( Lane v. Vitek Real Estate Industries Group (E.D.Cal.2010) 713 F.Supp.2d 1092, 1098; see also Moeller, at p. 834, 30 Cal.Rptr.2d 777 ["It would be inconsistent with the comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to incorporate another unrelated cure provision into statutory nonjudicial foreclosure proceedings."].) ⁵

By asserting a right to bring a court action to determine whether the owner of the Note has authorized its nominee to initiate the...