Opinion
—Plaintiff Stephen George Debrunner sought a declaratory judgment and quiet title to property on which nonjudicial foreclosure proceedings had been initiated by respondents Deutsche Bank National Trust Company (Deutsche Bank), its loan servicer, and its foreclosure trustee. The superior court sustained respondents’ demurrer to the first amended complaint without leave to amend. Plaintiff appeals, contending that an assignment of a deed of trust is of no legal effect without the actual transfer of the corresponding promissory note and therefore cannot support nonjudicial foreclosure by the assignee. Plaintiff further contends that the notice of default in this case was defective for inadequately identifying Deutsche Bank as the beneficiary and prematurely naming the trustee. We will affirm the judgment.
Background
Because this appeal arises from the sustaining of a demurrer, we summarize the underlying facts as they are stated in the operative pleading, the first amended complaint. Toward this end “we accept as true the properly pleaded material factual allegations of the complaint, together with facts that may properly be judicially noticed.” (Crowley v. Katleman (1994)
At this time Chiu was already a trustor on a first deed of trust on the property, having borrowed $975,000 from Quick Loan Funding, Inc. (Quick Loan), in June 2004. The trustee named on that deed of trust was Chicago Title Company. The following month Quick Loan assigned the deed of trust and Chiu’s promissory note to Option One Mortgage Corporation (Option One), which shortly thereafter assigned both interests to FV-1, Inc.
The final assignment of the deed of trust was from FV-1 to Deutsche Bank, with respondent Saxon Mortgage Services, Inc. (Saxon), acting as “Attorney in Fact.” This document bore three dates: September 2, 2008, when the assignment was originally executed; September 21, 2009, when it was notarized; and January 5, 2010, when it was recorded.
In January 2008, plaintiff and his co-investors filed a notice of default, and in April they scheduled a trustee’s sale for the following month. In June Chiu’s business entity filed for chapter 11 bankruptcy protection. The bankruptcy court thereafter granted plaintiff and the co-investors’ motion for relief from the bankruptcy stay, and in March 2009 they foreclosed and obtained a trustee’s deed upon sale for the property.
In August 2008, however, well before the sale was completed, Saxon, the servicer of the first-position loan, filed a notice of default on the property. Because of the bankruptcy proceeding, however, the notice was rescinded. In July 2009 Deutsche Bank moved for relief from the bankruptcy stay in order to file a new notice of default. That motion was taken off calendar when the bankruptcy matter was closed in August 2009.
On September 15, 2009, the foreclosure trustee, Old Republic Default Management Services (Old Republic), recorded a new notice of default on the property. In the accompanying Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788) notice, Old Republic named Deutsche Bank as the creditor and Saxon as its “attorney-in-fact.” The notice informed the debtor that payment to stop the foreclosure could be made to Saxon, and it provided Saxon’s address and telephone number. On January 5, 2010, the same day the assignment from FV-1 to Deutsche Bank was recorded, the county recorded a
Plaintiff commenced this action in November 2009 to stop the impending foreclosure, naming Deutsche Bank, Saxon, and Old Republic. In his first amended complaint in April 2010, he specifically sought a declaration of multiple facts—in particular, that defendants had no right to foreclose because Deutsche Bank did not have physical possession of or ownership rights to the original promissory note. Plaintiff further sought to quiet title to the property and remove the first deed of trust in favor of Quick Loan.
Deutsche Bank and Saxon demurred on multiple grounds, primarily the absence of facts indicating a violation of nonjudicial foreclosure procedures. Defendants specifically argued, for instance, that possession of the original note was not required under the applicable statutes, Civil Code section 2924 et seq.
Although he had alleged Old Republic to be the foreclosure trustee, plaintiff further argued in opposition to the demurrer that neither Saxon nor Old Republic had any right to initiate foreclosure because there was no proper “chain of assignment” from Option One to Saxon or to Old Republic, as required under section 2934a. He noted that Quick Loan had assigned the deed of trust, but not the note, to Option One, which thereafter assigned the deed of trust to FV-1 and eventually to Deutsche Bank. These assignments, he maintained, were “of no value” and invalid because they were not accompanied by assignment of the promissory note. In other words, the deed of trust and the note “must remain married and joined to each other for a seemed debt to exist. Once they are divorced, or widowed, as has happened in this case, the deed of trust becomes a nullity and the promissory note an unsecured debt. Neither carry [szc] the right to foreclosure.”
This assertedly defective assignment of the note formed the basis of plaintiff’s additional claim that respondents had not complied with section 2943, subdivision (b)(1), which requires the beneficiary in a foreclosure
The superior court was not convinced by plaintiff’s position. Responding to plaintiff’s assertion that Deutsche Bank was not the proper assignee and therefore not entitled to sell the property under section 2932.5, the court looked to plaintiff’s pleading itself, to which was attached three recorded assignments proceeding from Quick Loan to Option One to FV-1 to Deutsche Bank. Because those assignments conveyed all beneficial interest in the deed of trust, “[t]ogether with the note or notes therein described or referred to,” a chain of title had been established on the face of the first amended complaint. The court also rejected plaintiff’s assertion that physical possession of the promissory note was a precondition to nonjudicial foreclosure, citing federal district court decisions. Addressing plaintiff’s claims of noncompliance with section 2932.5, subdivision (b) of section 2934a, and subdivision (b)(1) of section 2943, the superior court deemed these challenges to be meritless or nonprejudicial. It then sustained respondents’ demurrer without leave to amend. Plaintiff filed a timely notice of appeal from the ensuing judgment of dismissal.
Discussion
1. Scope and Standard of Review
Because plaintiff misstates the standard by which we review the challenged order, we briefly revisit the applicable principles. A demurrer is properly sustained when the complaint “does not state facts sufficient to constitute a cause of action,” or where the court “has no jurisdiction of the subject of the cause of action alleged in the pleading.” (Code Civ. Proc., § 430.10, subds. (e), (a).) “On appeal from a dismissal following the sustaining of a demurrer, this court reviews the complaint de novo to determine whether it alleges facts stating a cause of action under any legal theory. ... [1] Because the function of a demurrer is not to test the truth or accuracy of the facts alleged in the complaint, we assume the truth of all properly pleaded factual allegations. [Citation.] Whether the plaintiff will be able to prove these allegations is not relevant; our focus is on the legal sufficiency of the complaint.” (Los Altos Golf & Country Club v. County of Santa Clara (2008)
The standard of review recited by plaintiff does not come into play except in determining whether the court erred in refusing to allow amendment of the pleading. We evaluate that ruling for abuse of discretion, even though plaintiff made no amendment request below. (Code Civ. Proc., § 472c, subd. (a); Smith v. State Farm Mutual Automobile Ins. Co. (2001)
2. Deutsche Bank’s Right to Foreclose
Of the claims in his first amended complaint, plaintiff directs his arguments on appeal primarily to the validity of the assignment to Deutsche Bank and the necessity that a promissory note be produced to effectuate a foreclosure.
Plaintiff further contends that a notice of default under section 2924c, subdivision (b)(1), must identify the beneficiary, not just the “servicer.” Strict compliance with this provision is necessary, plaintiff argues; “[t]he i’s must be dotted and the t’s crossed.” Because prejudice need not be shown, says plaintiff, the failure to provide the beneficiary’s name and contact information
a. Status of Deutsche Bank as Beneficiary
Plaintiff raises several issues related to the validity of the transfer of the deed of trust, but his position on most of them is predicated on a single contention, that no foreclosure of a deed of trust is valid unless the beneficiary is in possession of the underlying promissory note. Without such possession, the deed of trust is “severed” from the promissory note and consequently is of no effect. Plaintiff submits that we must look to the California Uniform Commercial Code for guidance, because a promissory note is a negotiable instrument which cannot be assigned without a valid endorsement and physical delivery to the assignee.
As the parties recognize, many federal courts have rejected this position, applying California law. All have noted that the procedures to be followed in a nonjudicial foreclosure are governed by sections 2924 through 2924k, which do not require that the note be in the possession of the party initiating the foreclosure. (See, e.g., Geren v. Deutsche Bank National (E.D.Cal., Aug. 12, 2011, No. CV F 11-0938 LIO GSA)
Plaintiff’s reliance on the California Uniform Commercial Code provisions pertaining to negotiable instruments is misplaced. “The comprehensive statutory framework established [in sections 2924 to 2924k] to govern nonjudicial foreclosure sales is intended to be exhaustive.” (Moeller v.
Plaintiff has referred us to the recent appellate bankruptcy decision in In re Veal (9th Cir. Bankr. 2011)
The Veal court applied the rule urged by plaintiff in the present appeal— that is, that “ ‘[a]n assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.’ ” (In re Veal, supra,
Even if the California Uniform Commercial Code provisions regarding negotiable instruments somehow imposed superseding legal constraints on lenders seeking a “quick, inexpensive and efficient remedy” through nonjudicial foreclosure (Moeller v. Lien, supra,
Plaintiff complains that the notice of default was defective because (1) it did not identify the beneficiary and (2) it listed Old Republic as the trustee even though there was no recorded substitution of this entity as trustee at that time.
Plaintiff does not provide authority to the contrary. Instead, he invokes the Perata Mortgage Relief Act of 2008, Senate Bill No. 1137 (2007-2008 Reg. Sess.), for the sole proposition that strict compliance with foreclosure procedures is required. He does not explain how that law, particularly section 2923.5, subdivision (b), is directly relevant to this case; he even concedes that section 2923.5 is inapplicable because the property was not owner occupied. (§ 2923.5, subd. (i).) Plaintiff apparently relies on this provision only to demonstrate “how fast and loose (or at least sloppy) with the facts respondents are, even when they are submitting recorded documents and seizing homes.”
Plaintiff’s resort to “strict compliance” is unavailing. Even if we were to read such a rule into the inapposite section 2923.5 and apply it by analogy to the present circumstances, plaintiff would still be unable to articulate how any technical defect resulted in prejudice to him. As for the premature substitution of Old Republic, the superior court observed, section 2934a provides for the situation in which a substitution of trustee is executed but is not recorded
Plaintiff does not offer any separate reasons for finding a viable cause of action for quiet title, his second cause of action, in the face of respondents’ foreclosure efforts. The only mention of this claim is in his reply brief, where he merely asserts his legal right to the property under the trustee’s deed upon sale and notes that he pleaded this right along with the adverse claim. To the extent that his position depends on the invalidity of the assignment, it falls with the cause of action for declaratory relief, as he did not show title free and clear of the first deed of trust.
Plaintiff also has suggested no basis for finding an abuse of discretion in the court’s decision not to allow further amendment. In his opening brief he does not even raise this issue; instead, he relies on his conviction that the allegations in the first amended complaint stated a viable legal theory for relief. Even in his reply brief, belatedly, he merely asserts the intention to add “multiple tort causes of action as well as an action for unfair business practices,” to respond to respondents’ “fraud.”
The judgment of dismissal is affirmed.
Rushing, P. J., and Premo, J., concurred.
A petition for a rehearing was denied April 6, 2012, and appellant’s petition for review by the Supreme Court was denied June 13, 2012, S201673.
Notes
All further unspecified statutory references are to the Civil Code.
Plaintiff concedes, for example, that Saxon complied with section 2943(b)(1) by providing the documentary evidence of indebtedness in response to plaintiff’s demand. And as noted in our discussion of the notice of default, post, plaintiff also abandons his claim of noncompliance with section 2932.5.
The court also commented that “[ultimately, the minimum requirements for the initiation of foreclosures under applicable nonbankruptcy law will shape the boundaries of real party in interest status . . . with respect to relief from stay matters. As a consequence, the result in a given case may often depend upon the situs of the real property in question.” (In re Veal, supra,
Although Old Republic identified itself as the trustee in the September 2009 notice of default, the substitution of trustee from Chicago Title Company (the original trustee) to Old Republic was not recorded until January 5, 2010. We took judicial notice of the document evidencing the substitution.
Section 2934a, subdivision (b) states, “If the substitution is executed, but not recorded, prior to or concurrently with the recording of the notice of default, the beneficiary or beneficiaries or their authorized agents shall cause notice of the substitution to be mailed prior to or concurrently with the recording thereof, in the manner provided in Section 2924b, to all persons to whom a copy of the notice of default would be required to be mailed by the provisions of Section 2924b. An affidavit shall be attached to the substitution that notice has been given to those persons and in the manner required by this subdivision.”
These new claims would include “cancellation of recorded instruments, recording of false documents, attempted unlawful foreclosure, attempted conversion, and other causes of action.”