Kan v. Guild Mortg. Co.

• Citation: 178 Cal.Rptr.3d 745,230 Cal.App.4th 736
• Decision Date: 25 September 2014
• Docket Number: B254007
• Court: California Court of Appeals
• Parties: Lindsay T. KAN, as Trustee, etc., Plaintiff and Appellant, v. GUILD MORTGAGE COMPANY, Defendant and Respondent; The Bank of New York Mellon, as Trustee, etc., et al., Interveners.

230 Cal.App.4th 736

178 Cal.Rptr.3d 745

Lindsay T. KAN, as Trustee, etc., Plaintiff and Appellant,

v. GUILD MORTGAGE COMPANY, Defendant and Respondent;The Bank of New York Mellon, as Trustee, etc., et al., Interveners.

B254007

Court of Appeal, Second District, Division 2, California.

Filed September 25, 2014

As Modified October 15, 2014

Paul Kujawsky, Studio City, for Plaintiff and Appellant.

Severson & Werson, Jan T. Chilton, San Francisco, Kerry W. Franich, Irvine, for Interveners.

No appearance for Defendant and Respondent.

BOREN, P.J.

Appellant's real property loan is in default. Appellant seeks to quiet title and avoid foreclosure by alleging that the deed of trust on the property was improperly securitized and that the beneficiary lacks authority to foreclose. Because California's nonjudicial foreclosure statutes provide no basis for appellant's claim, we find that the trial court properly sustained the demurrer to appellant's complaint without leave to amend.

BACKGROUND

In July 2007, Lindsay T. Kan executed a first note for $516,000, secured by a deed of trust on real property in Stevenson Ranch (the property). The same day, he executed a second note in the amount of $64,500, also secured by a deed of trust on the property. Both trust deeds named Guild Mortgage Company as the lender, Guild Administration Corp. as the trustee, and Mortgage Electronic Registration Systems, Inc. (MERS), as the beneficiary acting as nominee for the lender, its successors, and assigns.

More than two years later—based on what is characterized in appellant's opening brief as "spectacularly unsound and specious advice"—Kan recorded two instruments that purported to "modify" the deeds of trust to "correctly reflect" an indebtedness of zero dollars. The instruments stated the deeds of trust were "modified to eliminate any further payments, [and] to reflect a status of ‘paid as agreed.’ " Shortly afterward, PCYA Trust, of which Kan is the trustee, recorded two documents labeled "full reconveyance," purporting to reconvey both trust deeds to Lindsay Kan and declare them "void at inception." Kan then deeded the property to the PCYA Trust.

In October 2010, in spite of Kan's maneuverings, MERS substituted Recontrust Company, N.A. (Recontrust), as the trustee under the first deed of trust and assigned all beneficial interest under the deed of trust to The Bank of New York Mellon (BONY), as trustee for CWALT, Inc., Alternative Loan Trust 2007–OA11 Mortgage Pass–Through Certificates, Series 2007–OA11 (CWALT).¹ Recontrust recorded a notice of default on December 8, 2010. It served a notice of trustee's sale in March 2012. The foreclosure sale, however, has not yet occurred.

The second deed of trust was assigned by MERS to Bank of America, N.A. (BofA), in July 2012.

In October 2012, Kan, as trustee of the PCYA Trust, filed a quiet title complaint against Guild Mortgage Company and "all persons or entities unknown, claiming any legal or equitable right, title, estate, lien or interest in the property." The complaint alleged, among other things, that the loans secured by the property were securitized, resulting in defendants' interest in the property being extinguished, relinquished, or discharged. It further claimed that all loan debt had been fully satisfied. In addition, the complaint alleged that the securitization process was deficient because the transfer of the promissory notes to a securitized trust did not comply with the terms of the servicing and pooling agreement governing the securitized trust.

Although the complaint alleged that the first trust deed had been assigned to BONY, and an attachment to the complaint showed that the second trust deed was assigned to BofA, neither entity was listed as a defendant. As a result, respondents BONY and BofA, along with respondent BANA LAS HFI 2ND LIEN HELOANS (BANA), moved to intervene in the action. According to the application for leave to intervene, BONY is the current beneficiary of the first deed of trust, BANA is the current beneficiary of the second deed of trust, and BofA is the current servicer of the loans. The trial court granted leave to intervene.

Respondents filed a demurrer to the complaint. Kan opposed the demurrer. The trial court granted requests for judicial notice made in connection with the demurrer and sustained the demurrer without leave to amend.

Judgment was entered in favor of respondents. Kan timely appealed.

DISCUSSION

I. Standard of Review

We review the ruling sustaining the demurrer de novo, exercising independent judgment as to whether the complaint states a cause of action as a matter of law. ( Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115, .) We give the complaint a reasonable interpretation, assuming that all properly pleaded material facts are true, but not assuming the truth of contentions, deductions, or conclusions of law. ( Aubry v. Tri–City Hospital Dist. (1992) 2 Cal.4th 962, 967, [9 Cal.Rptr.2d 92, 831 P.2d 317].) We may consider matters that are properly judicially noticed. ( Four Star Electric, Inc. v. F & H Construction (1992) 7 Cal.App.4th 1375, 1379, .)

A demurrer tests the legal sufficiency of the complaint. ( Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497, .) Accordingly, we are not concerned with the difficulties a plaintiff may have in proving the claims made in the complaint. ( Desai v. Farmers Ins. Exchange, supra, 47 Cal.App.4th at p. 1115, 55 Cal.Rptr.2d 276.) We are also unconcerned with the trial court's reasons for sustaining the demurrer, as it is the ruling, not the rationale, that is reviewable. ( Mendoza v. Town of Ross (2005) 128 Cal.App.4th 625, 631, ; Sackett v. Wyatt (1973) 32 Cal.App.3d 592, 598, fn. 2, .)

When a demurrer is sustained without leave to amend, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" ( Blank v. Kirwan (1985) 39 Cal.3d 311, 318, [216 Cal.Rptr. 718, 703 P.2d 58].) A plaintiff may show for the first time on appeal how amendment would cure the complaint's defects. ( Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711, .)

II. Proposed Amendments

The complaint contained a number of theories by which Kan claimed he was the sole party that had valid title to the property. On appeal, Kan abandons the majority of these theories, and argues only that he can state a valid cause of action for quiet title based on allegations that the attempt to transfer the first deed of trust to the mortgage-backed "investment" trust (CWALT) did not comply with the trust's servicing and pooling agreement and was therefore void.

Kan proposes that, upon remand, he be allowed to amend his complaint to make the following allegations: the investment trust was created under New York law; the trust is subject to the requirements imposed by the Internal Revenue Code on real estate investment trusts; New York law requires that all trust deeds be transferred to such an investment trust before the trust closes; the transfer of the subject trust deed to the investment trust occurred after the trust closed in 2007; and the attempted transfer to the investment trust was therefore void. Kan asserts these allegations sufficiently plead a right to quiet title in his favor, including a finding that respondents have no right, title, or interest in the property.

III. Analysis

Kan's argument is not a novel one. The wave of real estate loan defaults over the past decade has given rise to a number of creative theories developed by individuals hoping to avoid foreclosure. The argument that a defendant lacks standing to foreclose because of an improper securitization process has recently become particularly popular.

This argument was addressed in Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 511, ( Jenkins ). The plaintiff alleged that her loan was pooled with other home loans in a securitized investment trust in a manner violating the trust's pooling and servicing agreement, thereby resulting in extinguishment of any security interest in her home. The Jenkins court found that the plaintiff's allegations were insufficient to state a cause of action because "California courts have refused to delay the nonjudicial foreclosure process by allowing trustor-debtors to pursue preemptive judicial actions to challenge the right, power, and authority of a foreclosing ‘beneficiary’ or beneficiary's ‘agent’ to initiate and pursue foreclosure." ( Id. at p. 511, 156 Cal.Rptr.3d 912.) California's nonjudicial foreclosure scheme has an " ‘ "exhaustive nature," ’ " which is intended " ‘ "(1) to provide the [beneficiary-creditor] with a quick, inexpensive and efficient remedy against a defaulting [trustor-debtor]; (2) to protect the [trustor-debtor] 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." ’ "

( Id. at pp. 509–510, 156 Cal.Rptr.3d 912, quoting Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1154, ( Gomes ).) A preemptive action "seeks to create ‘the additional requirement’ that the foreclosing entity must ‘demonstrate in court that it is authorized to initiate a foreclosure’ before the foreclosure can proceed," a process not contemplated by the nonjudicial foreclosure statutes. ( Jenkins, supra, 216 Cal.App.4th at pp. 512–513, 156 Cal.Rptr.3d 912, quoting Gomes, supra, 192 Cal.App.4th at p. 1154, 121 Cal.Rptr.3d 819.) The Jenkins court distinguished a factual situation involving misconduct in a nonjudicial foreclosure sale, which can provide a basis for a valid postforeclosure cause of action, from the plaintiff's preemptive action, which improperly sought to stop or delay the nonjudicial...