Kalnoki v. First Am. Tr. Servicing Solutions, LLC, C073207

CourtCalifornia Court of Appeals
Citation214 Cal.Rptr.3d 292,8 Cal.App.5th 23
Decision Date01 February 2017
Docket NumberC075062,C073207,C079144
Parties Andrew KALNOKI et al., Plaintiffs and Appellants, v. FIRST AMERICAN TRUSTEE SERVICING SOLUTIONS, LLC et al., Defendants and Respondents. Andrew G. Kalnoki et al., Plaintiffs and Appellants, v. Wells Fargo Bank N.A. et al., Defendants and Respondents.

Certified for Partial Publication.*

Andrew G. Kalnoki, Sacramento, for plaintiffs and appellants.

Law Offices of Glenn H. Wechsler, Glenn H. Wechsler and Natalie Sperry Mandelin, Walnut Creek, for Defendants and Respondents First American Trustee Servicing Solutions and First American Title Insurance Company;

Dawe & Christopherson, Dean A. Christopherson, Walnut Creek, for Defendants and Respondents Wells Fargo Bank, N.A. and U.S. Bank National Association.


Plaintiffs Andrew and Kathi Kalnoki (the Kalnokis) appeal from a judgment dismissing their second amended complaint for wrongful foreclosure-related causes of action after the trial court sustained the defendants' demurrers without leave to amend (case No. C073207, or the foreclosure appeal). They separately appealed from an order after judgment awarding attorney fees to defendants (case No. C075062, or the attorney fees appeal), and also from an order disbursing funds the Kalnokis deposited with the court under Code of Civil Procedure section 1170.5 to delay the trial in an unlawful detainer action filed against them regarding the residential property at issue here (case No. C079144, or the rental disbursement appeal). We consolidated all three appellate cases for argument and decision.

Finding that the Kalnokis failed to allege a cause of action on any theory, we shall affirm the judgments dismissing the second amended complaint with prejudice. We also conclude the trial court properly awarded attorney fees. We find, however, that the court erred in disbursing to Wells Fargo the rental funds on deposit with the court. We therefore reverse the rental disbursement order and order that the funds be returned to the Kalnokis.

A. The Foreclosure Appeal ( Case No. C073207 )

Because this case comes to us on demurrer, we accept the truth of material facts properly pleaded in the operative second amended complaint—a 70–page document containing 400 separate paragraphs and incorporating over 30 pages of attached exhibits—but not contentions, deductions, or conclusions of fact or law in that pleading. (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924, 199 Cal.Rptr.3d 66, 365 P.3d 845 (Yvanova ).) We may also consider matters subject to judicial notice. (Ibid. ) Although lengthy, convoluted, and rife with conclusory allegations, the second amended complaint alleges as follows:

In February 2004, the Kalnokis refinanced their home in Carmichael, California (the home or the property), with Wells Fargo Home Mortgage, Inc., by obtaining a $405,000 refinance loan (the loan), which they used for their home and to pay down some existing consumer debt. They allege they were enticed to leave their previous lender by false promises of later being able to easily modify the new adjustable rate loan.

The loan was secured by a deed of trust on the home naming the Kalnokis as the borrower, Wells Fargo Home Mortgage, Inc. as the lender and beneficiary, and Fidelity National Title Ins. Co. as the trustee. The deed of trust was recorded with the Sacramento County Recorder on February 17, 2004.

Under the deed of trust, the Kalnokis "irrevocably grant[ed] and convey[ed] [the property] to Trustee, in trust, with power of sale" in the event they defaulted on the loan. The lender, at its option, had the ability to appoint a successor trustee by an instrument executed and acknowledged by the lender and recorded in the recorder's office in Sacramento County. The lender also had the right to sell the note evidencing the loan or a partial interest in the note together with the deed of trust one or more times without prior notice to the borrower.

In May 2004, Wells Fargo Home Mortgage, Inc. merged with defendant Wells Fargo Bank, N.A. (Wells Fargo). Following the merger, Wells Fargo succeeded to the assets and liabilities of Wells Fargo Home Mortgage, Inc. and the latter entity ceased to exist.

In December 2009, after suffering several personal hardships, the Kalnokis fell behind on their loan payments. In March 2010, the Kalnokis forwarded a check to cover one month's payment, but Wells Fargo declined the check as it was insufficient to bring the account current. The Kalnokis did not make any further mortgage payments.

After defaulting, the Kalnokis applied several times to Wells Fargo to modify their loan. Wells Fargo either lost or failed to process their modification applications. During the modification process, Wells Fargo employees repeatedly told the Kalnokis that their mortgage was owned by EMC Mortgage Corporation and that Wells Fargo was merely the loan servicer.

On March 30, 2010, defendant First American Title Insurance Company (FATCO) as "attorney-in-fact" for defendant First American LoanStar Trustee Services LLC (Loanstar) executed a notice of default and election to sell (Notice of Default) for the deed of trust. The Notice of Default identified Loanstar "as agent for the current beneficiary" of the deed of trust. Loanstar later changed its name to First American Trustee Servicing Solutions, LLC. For convenience, we shall refer to both entities as Loanstar.

Attached to the Notice of Default was a declaration stating that the requirements of Civil Code section 2923.5 had been met. John Kennerty, identified as the Vice President of Loan Documentation for Wells Fargo Home Mortgage, executed the declaration on March 24, 2010. The Notice of Default was recorded in Sacramento County on April 2, 2010.

On April 1, 2010, Wells Fargo, through its attorney in fact FATCO, executed a substitution of trustee (Substitution) substituting Loanstar as the new trustee on the deed of trust. The first page of the Substitution identifies the original beneficiary as Wells Fargo Home Mortgage, Inc. It also identifies Wells Fargo as the present beneficiary. The signature block on the second page includes the following: "Wells Fargo Bank, NA Successor by Merger to Wells Fargo Home Mortgage By First American Title Insurance Company as Attorney in Fact." Like the Notice of Default, the Substitution was recorded in Sacramento County on April 2, 2010.

On June 16, 2010, without the Kalnokis knowledge, Wells Fargo assigned the deed of trust and the note (the Assignment) to defendant U.S. Bank, N.A. (U.S. Bank), as Trustee for the Bear Stearns ARM Grantor Trust, Series 2005–2, a common law trust organized under New York trust Law (Bear Stearns securitized trust). The Bear Stearns securitized trust was governed by a pooling and services agreement that had specific requirements for transferring property into the trust.

FATCO executed the Assignment as "attorney in fact" for Wells Fargo as the "beneficiary" under the deed of trust. Wells Fargo is identified in the signature block as "successor by merger to Wells Fargo Home Mortgage, Inc." The Assignment was recorded in Sacramento County on June 21, 2010.

On July 3, 2010, Loanstar as trustee executed a notice of trustee's sale (Notice of Sale) for the Kalnokis' home. The Notice of Sale set a trustee's sale for July 26, 2010, and listed the outstanding balance owed on the loan as $407,839.32. The Notice of Sale was recorded in Sacramento County on July 6, 2010.

Attached to the Notice of Sale was a declaration executed by Marsha Graham that declared the mortgage loan servicer had obtained an exemption from certain statutory time limits for giving notice of the sale. Ms. Graham signed the declaration on June 17, 2009, as an Assistant Vice President of Wells Fargo Home Mortgage, Inc.

A nonjudicial foreclosure sale was held on February 22, 2011, and U.S. Bank was the successful bidder. Loanstar as trustee issued a Trustee's Deed Upon Sale to U.S. Bank, which was recorded in the Sacramento County Recorder's Office on March 1, 2011.

The Kalnokis filed this action the day of the trustee's sale to block the foreclosure sale. Three days later, the Kalnokis filed an amended complaint alleging 15 causes of action, including fraud, intentional and negligent infliction of emotional distress, violations of various foreclosure statutes as well as the Uniform Commercial Code, breach of the implied covenant of good faith and fair dealing, declaratory relief, conspiracy, violations of California's Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) and Business and Professions Code section 17200, unjust enrichment and rescission, and for a stay of proceedings. They later substituted U.S. Bank in as a "Doe" defendant.

Following the foreclosure sale, U.S. Bank filed a separate unlawful detainer action against the Kalnokis. The Kalnokis moved to stay the unlawful detainer action or otherwise consolidate it with their wrongful foreclosure case. The court granted the motion to consolidate the two actions, with the wrongful foreclosure action designated as the lead case, on the condition that the Kalnokis deposit damage payments with the court pursuant to Code of Civil Procedure section 1170.5 to delay the trial on the unlawful detainer action while the wrongful foreclosure case was pending. The Kalnokis stipulated to deposit monthly payments of $1,950, which represented the fair market rental value of the property.

Loanstar and FATCO jointly demurred to the amended complaint. Wells Fargo separately filed a demurrer in which U.S. Bank joined. The court first sustained the joint demurrer of Wells Fargo and U.S. Bank with prejudice as to the causes of action based on Civil Code sections 2923.5 and 2923.6 and UCC 3–104, stay of proceedings, and violation of the Rosenthal Act. The Kalnokis were given leave to amend all remaining causes of action. The court's ruling on the joint demurrer of...

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