Khan v. ReconTrust Co.
81 F. Supp. 3d 867
N.D. Cal.2015Background
- Khan obtained two mortgages in 2006 on property in Fremont and fell behind on payments beginning in 2009 after adjustable-rate increases.
- Khan alleges multiple loan-modification efforts with Bank of America in 2009–2010; she claims promises of permanent modifications were made but not honored.
- ReconTrust recorded a Notice of Default in September 2011; SPS became loan servicer in June 2012 and Khan alleges SPS refused payments, ignored modifications, and added charges.
- Khan sued ReconTrust and Bank of America in 2012; the court earlier dismissed TILA, RESPA, and wrongful foreclosure claims with prejudice but allowed a fraud claim to proceed. She later added SPS in a Second Amended Complaint limited to the surviving fraud claim.
- Defendants moved to dismiss. The court took judicial notice of public recorder documents (deeds, assignments, notices, rescission) and considered prior orders and pleadings.
- Court dismissed Khan’s claims that she could enforce the Pooling and Servicing Agreement (PSA) for lack of standing, dismissed wrongful foreclosure allegations as improper/moot, dismissed fraud claims as to SPS (without prejudice) and ReconTrust (with prejudice), and allowed the fraud claim against Bank of America to survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to enforce PSA/securitization defects | Khan contends securitization/PSA violations void defendants’ foreclosure rights | Defendants: borrowers lack standing to enforce PSA unless party or third‑party beneficiary | Khan lacks standing; PSA‑based claims dismissed (leave to amend only if she can allege party/beneficiary status) |
| Wrongful foreclosure / trustee substitution | Khan alleges improper trustee substitution and wrongful foreclosure | Defendants: claim already dismissed previously; Notice of Default rescinded, claims moot | Wrongful foreclosure allegations improper and moot; previously dismissed with prejudice |
| Fraud claim against SPS | Khan alleges SPS refused payments, ignored modifications, and added charges (joined SPS to fraud claim) | SPS: complaint lacks specific fraudulent misrepresentations and is time‑barred for earlier conduct | Fraud claim against SPS dismissed without prejudice for failure to plead misrepresentation with required specificity; leave to amend allowed |
| Fraud claim against ReconTrust | Khan alleges ReconTrust recorded the Notice of Default and participated in foreclosure | ReconTrust: not involved in modification promises; insufficient connection to fraud | Fraud claim vs. ReconTrust dismissed with prejudice (repeated failure to cure; no role in alleged fraud) |
| Fraud claim against Bank of America | Khan alleges Bank of America promised permanent modification then reneged, causing her to forbear other remedies | Bank: fails Rule 9(b) specificity, no justifiable reliance, no damages (offers later modification) | Fraud claim against Bank of America survives; court finds allegations sufficiently particular, reliance and damages plausibly alleged |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 8 pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (application of Twombly plausibility and legal/conclusory distinctions)
- Lopez v. Smith, 203 F.3d 1122 (pro se plaintiffs granted leave to amend unless impossible)
- Ferdik v. Bonzelet, 963 F.2d 1258 (dismissal with prejudice where pro se repeatedly fails to cure deficiencies)
- Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1192 (elements of fraud under California law cited)
- Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (Rule 9(b) notice pleading standard in fraud cases)
- Bly-Magee v. California, 236 F.3d 1014 (Rule 9(b) particularity requirements)
- Glaski v. Bank of America, N.A., 218 Cal.App.4th 1079 (California appellate decision on standing to challenge securitization; discussed and found unpersuasive)
- Lueras v. BAC Home Loans Servicing, LP, 221 Cal.App.4th 49 (discussion of reliance in loan‑modification contexts)
- Lee v. City of Los Angeles, 250 F.3d 668 (judicial notice of public records permitted)