FORBES v. COUNTRYWIDE HOME LOANS, INC. No. E051309.

THOMAS J. FORBES, Plaintiff and Appellant, v. COUNTRYWIDE HOME LOANS, INC. et al., Defendants and Respondents.

Court of Appeals of California, Fourth District, Division Two.
Filed October 20, 2011.
Severson & Werson, Mark J. Kenney, Chaise R. Bivin, and Jonathan D. Dykstra for Defendants and Respondents.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

OPINION

KING, J.

I. INTRODUCTION

In December 2009, plaintiff Thomas J. Forbes (Forbes) lost his second home in a nonjudicial foreclosure sale. Shortly thereafter, he filed a complaint for "wrongful foreclosure" and other causes of action, seeking to set aside the sale based on various "irregularities" in the foreclosure proceedings, including Civil Code violations in the notice of default, the trustee's deed, and other documents recorded in connection with the foreclosure proceedings and sale. Defendants1 demurred to the complaint on the ground it failed to allege facts sufficient to state a cause of action to set aside the sale, or money damages. (Code Civ. Proc., § 430.10, subd. (e).) The trial court sustained the demurrer without leave to amend, and Forbes appeals from the judgment dismissing his complaint.

We affirm. We conclude that Forbes did not, and apparently cannot, state a cause of action to set aside the sale or for money damages. Judicially noticeable facts, including the contents of the notice of default and the other recorded documents, demonstrate that each of Forbes's claims of statutory and other irregularities in the foreclosure proceedings are without merit. Furthermore, Forbes did not, and apparently cannot, allege that he could have timely cured his default or timely redeemed his property from foreclosure had none of the claimed irregularities occurred.

II. BACKGROUND2

A. The Foreclosure Proceedings

In September 2005, Forbes acquired a single-family residence on Redfield Road in Riverside (the property). In July 2007, he refinanced the property by obtaining two loans in the principal sums of $380,000 and $71,200, for a total of $451,200. GreenPoint Mortgage Funding, Inc. (GreenPoint)3 was the lender of both loans, and the loans were secured by two deeds of trust recorded on July 3, 2007, with the deed of trust securing the $380,000 loan in first position (the first deed of trust). The first deed of trust includes a "Second Home Rider," under which Forbes agreed he would "occupy" and "only use" the property as his second home.

ReconTrust, the successor trustee under the first deed of trust, initiated nonjudicial foreclosure proceedings on March 6, 2009, by recording a notice of default. (Civ. Code, § 2924, subd. (a).)4 According to the notice of default, Forbes was $12,907.99 in arrears on the $380,000 loan as of March 5. The notice of default includes a declaration stating: "Countrywide tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5 . . . ." Countrywide was the original servicer of the $380,000 loan, and changed its name to BAC on April 27, 2009.

On June 16, 2009, ReconTrust recorded a notice of trustee's sale under the first deed of trust, and conducted the sale on December 1, 2009. MERS was the original beneficiary under the foreclosing first deed of trust. Pursuant to an instrument titled "Corporation Assignment of Deed of Trust" dated December 1, 2009, MERS transferred its beneficial interest, "together with" the $380,000 promissory note, to FNMA. FNMA was the highest bidder at the trustee's sale, and purchased the property in exchange for its credit bid of $431,580.88. On December 8, 2009, ReconTrust recorded a trustee's deed conveying the property to FNMA.

B. The Pertinent Allegations of Forbes's Complaint

In January 2010, Forbes filed a first amended complaint asserting 12 causes of action against "all defendants," namely, Countrywide, BAC, MERS, ReconTrust, and FNMA.5 Forbes's allegations of fact fall into two essential categories: (1) breach of an August 2009 oral forbearance agreement with BAC, under which BAC agreed not to foreclose on the property; and (2) "wrongful foreclosure" based on various irregularities or Civil Code violations in the foreclosure sale proceedings.

On this appeal, Forbes does not claim he stated a cause of action based on the August 2009 oral forbearance agreement.6 Instead, he only claims his complaint generally stated a cause of action to set aside the trustee's sale and for monetary damages, based on various irregularities in the foreclosure proceedings and sale.

We therefore confine our discussion of Forbes's allegations to the issues he raises on this appeal, and discuss the particulars of his pertinent allegations below. Based on all his allegations, Forbes prayed for an order vacating and setting aside the trustee's sale, cancelling and voiding the trustee's deed, compensatory and punitive damages, and declaratory relief.

C. The Trial Court's Ruling

Defendants jointly demurred to the complaint on the grounds it failed to state a cause of action and was uncertain. (Code Civ. Proc., § 430.10, subds. (e), (f).) Forbes did not file an opposition to the demurer. Instead, on April 6, 2010, three days before the scheduled April 9 hearing on the demurrer, he filed an ex parte application for leave to file a second amended complaint. That application was denied on April 7. The parties then agreed to continue the hearing on the demurrer to April 19.

At the April 19 hearing, the court sustained the demurrer without leave to amend on the ground the complaint failed to state a cause of action to void the trustee's sale. The court pointed out that Forbes could not void the trustee's sale on any ground because he did not, and apparently could not, allege he had tendered the amount owed on the foreclosing first deed of trust.

D. Standard of Review

A general demurrer, including a demurrer on the ground a complaint fails to allege facts sufficient to state a cause of action, is a trial of pure questions of law, and as such "`presents the same question to the appellate court as to the trial court, namely, whether the plaintiff has alleged sufficient facts to justify any relief . . . .'" (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1371.) Thus, on appeal from a judgment of dismissal following an order sustaining a general demurrer, we focus on the legal sufficiency of the complaint (Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 244), and we independently determine whether its allegations state a cause of action (Unfair Fire Tax Com. v. City of Oakland (2006) 136 Cal.App.4th 1424, 1427).

More specifically, we interpret the allegations of the complaint liberally, with a view to attaining substantial justice between the parties. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc., supra, 171 Cal.App.4th at p. 1371; Code Civ. Proc., § 452.) That is, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Speegle v. Board of Fire Underwriters (1946) 29 Cal.2d 34, 42.) We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) We also consider facts which may or must be judicially noticed (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Code Civ. Proc., § 430.30, subd. (a)) and exhibits to the complaint (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400). Allegations that are contrary to law or to judicially noticeable facts are treated as a nullity and are disregarded. (C.R. v. Tenet Healthcare Corp. (2009) 169 Cal.App.4th 1094, 1102.) Ultimately, we must uphold the order sustaining the demurrer only if the complaint fails to state a cause of action under any possible legal theory. (Sheehan v. San Francisco 49ers, Ltd. (2009) 45 Cal.4th 992, 998.)

E. The Statutory Framework Governing Nonjudicial Foreclosure Sales in California

Here we set forth a brief outline of the statutes governing nonjudicial foreclosure sales in California, in order to provide a necessary background and framework for our discussion of the specific contentions Forbes raises on this appeal.

Nonjudicial foreclosure sales in California are governed by a comprehensive and exclusive statutory scheme, beginning with section 2924 and currently extending through section 2924l. (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830 (Moeller); Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 221 (Mabry) ["(There is no § 2924m . . . yet.)"].) "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.) Because this statutory scheme governing nonjudicial foreclosures is intended to be exhaustive, California courts have traditionally refused to read additional requirements into the statutes. (See Lane v. Vitek Real Estate Indus. Group (E.D.Cal. 2010) 713 F.Supp.2d 1092, 1098; see also Moeller, supra, at p. 834.)

"California law recognizes two distinct ways in which a loan may be secured by real property, either by a mortgage or by a deed of trust." (Roque v. Suntrust Mortg., Inc. (N.D.Cal. Feb. 9, 2010, No. C-09-00040 RMW) 2010 U.S.Dist. Lexis 11546, p. *7.) A mortgage involves two parties, a borrower/mortgagor, who provides a lien on real property to a lender/mortgagee. (Yulaeva v. Greenpoint Mortg. Funding, Inc. (E.D.Cal. Sept. 3, 2009, Civ. No. S-09-1504 LKK/KJM) 2009 U.S.Dist. Lexis 79094.) In contrast to a mortgage, a deed of trust ordinarily involves three parties: a trustor, trustee, and beneficiary. (Ibid.)

"The trustor is the debtor owning the property that is conveyed to the trustee as security for the obligation owed to the beneficiary" or lender. (4 Miller & Starr, Cal. Real Estate (3d ed. 2000) § 10:3, p. 20.) The trustee holds a power of sale, or the power to sell the property upon the trustor's default of the secured obligation. (Monterey S.P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454, 460.) Deeds of trust are thus "`practically and substantially only mortgages with a power of sale . . . .'" (Ibid.; Bank of Italy etc. Assn. v. Bentley (1933) 217 Cal. 644, 657; see also 4 Miller & Starr, supra, § 10.1, pp. 13-14.) The beneficiary may act as the trustee and enforce the power of sale, though this is uncommon. (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 340.)

The first step in the nonjudicial foreclosure process is the recordation of a notice of default and election to sell. (§ 2924, subd. (a)(1); 4 Miller & Starr, supra, § 10:181, p. 552.) After the notice of default is recorded, at least three calendar months must elapse before a notice of sale may be given. (§§ 2924, subd. (a)(2), (3), 2924f, 2923.53; 4 Miller & Starr, supra, § 10:198, p. 620.) The notice of sale must be published, posted, and mailed at least 20 days before the sale, and recorded not less than 14 days before the sale. (§ 2924f; 4 Miller & Starr, supra, § 10:199, pp. 622-626.) The conduct of the sale, including any postponements, is governed by section 2924g. (4 Miller & Starr, supra, § 10:201, p. 637.) The property must be sold to the highest bidder at the sale. (§ 2924h; Homestead Savings v. Darmiento (1991) 230 Cal.App.3d 424, 433.)

As a general rule, the purchaser at a foreclosure sale takes title by a trustee's deed, free and clear of any right, title or interest of the trustor. (Moeller, supra, 25 Cal.App.4th at p. 831.) The sale is deemed final upon the trustee's acceptance of the highest bid at the sale, and is deemed perfected at 8:00 a.m. on the date of the sale, provided the trustee's deed is recorded within 15 calendar days after the sale, or on the next business day following the 15th day if the county recorder's office is closed on the 15th day. (§ 2924h, subd. (c); 4 Miller & Starr, supra, § 10.206, p. 659.)

Prior to the sale, a trustor in default of a monetary obligation has two opportunities to avoid the loss of his property. (Knapp v. Doherty (2004) 123 Cal.App.4th 76, 86-87.) First, the trustor may exercise his statutory right to "cure" his default and reinstate the terms of his loan by paying the full amount in arrears, notwithstanding whether the entire amount has been declared due under an acceleration clause. (§ 2924c, subd. (a)(1); 4 Miller & Starr, supra, §§ 10.186, pp. 575-576.) The right of reinstatement is effective on the date the notice of default is recorded and expires five business days prior to the sale, including postponements exceeding five business days. (§ 2924c, subd. (e).)

The trustor may also redeem the property from foreclosure at any time prior to the sale by exercising his equitable right of redemption. (Knapp v. Doherty, supra, 123 Cal.App.4th at p. 87; 4 Miller & Starr, supra, § 10:195, pp. 613-615; § 2903.) The exercise of the equitable right of redemption requires payment of the full amount due on the loan, including principal, interest, and any damages incurred by the beneficiary due to the delay in payment, including costs of foreclosure, trustee fees, and attorney fees. (4 Miller & Starr, supra, § 10:197, pp. 616-617; § 2905.) The equitable right of redemption expires at the time of the sale and may not be exercised after the sale. (4 Miller & Starr, supra, §§ 10:195, p. 613, 10.219, p. 735.)

The comprehensive statutory framework governing nonjudicial foreclosure sales is designed to serve three purposes: "`(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.'" (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1154 (Gomes); Moeller, supra, 125 Cal.App.4th at p. 830.)

Because trustors are generally in need of protection against the wrongful loss of valuable property rights, the statutes "strike an overall balance which favors the protection of trustors but is fair and reasonable to all of the parties." (4 Miller & Starr, supra, § 10.179, p. 548.) Nonjudicial foreclosure sales are "open to attack in a court of equity and the court will view the proceedings with extreme care to see that the rights of the trustor are fully protected." (Py v. Pleitner (1945) 70 Cal.App.2d 576, 579.) Thus, we proceed to examine Forbes's claims of irregularities in the proceedings with extreme care.

III. DISCUSSION

Forbes contends his complaint alleged sufficient facts to set aside the trustee's sale based on several "irregularities" or Civil Code violations appearing on the face of the documents recorded in connection with the foreclosure proceedings. He specifically claims the trustee's sale is invalid because (1) the declaration attached to the notice of default does not comply with section 2923.5; (2) the substitution of trustee under which ReconTrust became successor trustee did not include an affidavit of mailing (§ 2934a, subd. (c)); (3) the corporate assignment of the first deed of trust from MERS to FNMA was neither notarized nor recorded before the trustee's sale was conducted; (4) the same person executed the corporate assignment on behalf of MERS and FNMA and the trustee's deed on behalf of ReconTrust and FNMA; and, finally, (5) MERS was not authorized to transfer its beneficial interest under the foreclosing first deed of trust or the lender's rights under the secured promissory note to FNMA or to anyone else.

We address these claims in the order we have listed them. As will appear, none of Forbes's allegations, on the whole or specifically, state a cause of action to invalidate the foreclosure sale or the trustee's deed conveying the property to FNMA, or to support an award of monetary damages.

We next explain why the trial court correctly concluded that Forbes could not state a cause of action to void the sale based on any irregularities, because he did not, and apparently could not, allege he suffered any prejudice or damages as a result of his alleged irregularities. Finally, we observe that Forbes has not demonstrated a reasonable possibility, either in the trial court or on this appeal, that he could amend his complaint to state a cause of action to set aside the sale.

A. A Trustor Cannot Set Aside a Foreclosure Sale Based on the Failure of the Notice of Default to Comply with Section 2923.5

Forbes first claims that the notice of default is "flawed" and the trustee's sale is therefore void because a declaration attached to the notice of default did not comply with section 2923.5. This allegation is insufficient to void the trustee's sale.

Section 2923.5 requires that, before a notice of default may be filed pursuant to section 2924, the "mortgagee, beneficiary, or authorized agent" must contact the borrower "in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure." (§§ 2923.5, subd. (a)(1), (2), 2924(a)(1).) The statute also states: "A notice of default filed pursuant to Section 2924 shall include a declaration that the mortgagee, beneficiary, or authorized agent has [either (1)] contacted the borrower, [(2)] has tried with due diligence to contact the borrower as required by this section, or [(3)] that no contact was required pursuant to subdivision (h)." (§ 2923.5, subd. (b).)

A one-page document titled "California Declaration" (the Barajas declaration) was attached to the notice of default. The declaration was signed on February 27, 2009, in Fort Worth, Texas, "under penalty of perjury, under the laws of the State of California," by Rosalinda Barajas, identified as a "loss [mitigation] review specialist" for Countrywide. The Barajas declaration was addressed to Forbes at an address in Albany, and listed the Redfield Road property as the "property address." A box was checked with an "x" next to the preprinted statement: "Countrywide tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5 . . . ."

Forbes argues that the Barajas declaration does not comply with section 2932.5 because it does not show that Barajas had personal knowledge of any of the efforts made to contact him before the notice of default was recorded. He also claims that an employee or agent of BAC, rather than Countrywide, should have signed the declaration because BAC, not Countrywide, was responsible for servicing his loan at the time the declaration was signed on February 27, 2009.

Our colleagues in Division Three effectively settled both of these claims in Mabry, supra, 185 Cal.App.4th 208, a decision issued in June 2010, following the trial court's April 2010 ruling on defendants' demurrer. Section 2923.5, known as the Perata Mortgage Relief Act, applies to deeds of trust recorded between January 1, 2003 and December 31, 2007. (§ 2923.5, subd. (i); Mabry, supra, at p. 214.) The statute thus applies to the foreclosing first deed of trust recorded on July 3, 2007.

As indicated, the Barajas declaration states: "Countrywide tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5 . . . ." There is no authority to support Forbes's assertion that the declaration had to include or be based upon a factual showing that Barajas had personal knowledge of the efforts made to contact him. As explained in Mabry, nothing in the statute requires that the declaration be signed under oath or penalty of perjury. (Mabry, supra, 185 Cal.App.4th at pp. 233-234.) Concomitantly, nothing in the statute requires that the declarant have personal knowledge of the efforts made to contact the borrower, when the declaration states that the due diligence requirement has been met. (See ibid.)

Such "under oath" and "personal knowledge" requirements would be incompatible with the plain language and structure of the statute. As explained in Mabry: "The way section 2923.5 is set up, too many people are necessarily involved in the process for any one person to likely be in the position where he or she could swear that all three requirements of . . . subdivision (b) were met." (Mabry, supra, 185 Cal.App.4th at p. 233.) Nor is it likely, in view of the myriad efforts that the statute requires be undertaken in order to satisfy the due diligence requirement, that any one person would have personal knowledge that the due diligence requirement was fully satisfied.7

Furthermore, and as the court in Mabry also pointed out, section 2932.5 does not require that the declaration be "custom drafted." (Mabry, supra, 185 Cal.App.4th at pp. 233-235.) Instead, the statute requires only that the declaration "track the language" of the statute. (Id. at p. 235.) By stating that "Countrywide tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5," the Barajas declaration tracked the language of section 2923.5, subdivision (b), and complied with the statute.

Nor can Forbes state a cause of action to set aside the trustee's sale based on his claim that an employee or agent of BAC, rather than Countrywide, should have signed the declaration. Even if BAC, rather than Countrywide, was the agent of the beneficiary at the time the declaration was signed on February 27, 2009, BAC's failure to sign the declaration is insufficient to set aside the trustee's sale. A borrower's sole remedy for any violation of section 2923.5, including the complete failure to include any declaration with the notice of default, is to postpone the foreclosure sale before the sale has taken place. (Mabry, supra, 185 Cal.App.4th at p. 235.) Once the foreclosure sale has occurred, the borrower has no remedy for a violation of section 2923.5. (Ibid.)

As explained in Mabry: "There is nothing in section 2923.5 that even hints that noncompliance with the statute would cause any cloud on title after an otherwise properly conducted foreclosure sale." (Mabry, supra, 185 Cal.App.4th at pp. 223-225, 235 [reading § 2923.5 in conjunction with § 2924g].) The only right that section 2923.5 confers on a borrower is the right to be contacted in order to "assess" and evaluate" alternatives to foreclosure, before a notice of default is recorded. (Mabry, supra, at p. 225.) Allowing a borrower to enforce this right by setting aside "an otherwise properly conducted foreclosure sale" would defeat one of the purposes of California's "`comprehensive statutory scheme'" governing nonjudicial foreclosures (§§ 2924-2924l), which is "`"`to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.'"'" (Mabry, supra, at p. 235, quoting Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250.)

B. The Substitution of Trustee Was Not Required to Include an Affidavit of Mailing or Service Under Section 2934a

Forbes next claims the foreclosure sale must be set aside because the substitution of trustee pursuant to which ReconTrust became the trustee under the foreclosing first deed of trust, fails to comply with section "2934(4)(c)." Forbes apparently means to argue the substitution of trustee fails to comply with section 2934a, subdivision (c). That statute requires that a copy of a substitution of trustee be mailed to the trustor and other interested persons, and also requires that the substitution of trustee include an affidavit of mailing. (§ 2934a, subd. (c).)

Section 2934a, subdivision (c) states: "If the substitution is effected after a notice of default has been recorded but prior to the recordation of the notice of sale, the beneficiary or beneficiaries or their authorized agents shall cause of a copy of the substitution to be mailed, prior to, or concurrently with, the recording thereof, in the manner provided in Section 2924b, to the trustee then of record and 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."

Pursuant to the substitution of trustee, MERS, the beneficiary under the first deed of trust, substituted ReconTrust as the trustee in place of Marin Conveyancing Corp., the original trustee. MERS signed or "effected" the substitution of trustee on March 5, 2009. Also on March 5, ReconTrust signed the notice of default, and on March 8, ReconTrust recorded the notice of default. On June 11, 2009, ReconTrust signed the notice of sale, and on June 16, 2009, ReconTrust recorded both the substitution of trustee and the notice of sale.

Forbes complains that the recorded substitution of trustee, which is a single-page document, does not include an affidavit of mailing showing it was mailed to the trustee of record, Marin Conveyancing Corp., and other persons, if any, who may have requested notice of the notice of default and notice of sale under section 2924b. The failure to include an affidavit of mailing, Forbes claims, constitutes a clear violation of section 2934a, subdivision (c).

For their part, defendants concede that the substitution of trustee "fails to comply with section 2934a insofar as it does not include an affidavit indicating that notice of the substitution was given to all the appropriate parties." They argue, however, that this procedural irregularity not render the foreclosure sale void.

First, we disagree with both Forbes and defendants that section 2934a, subdivision (c) applies to the substitution of trustee in question, given that the substitution of trustee was executed on March 5 and was therefore "effected" before the notice of default was recorded on March 8. By its terms, section 2934a, subdivision (c) applies, "[i]f the substitution is effected after a notice of default has been recorded but prior to the recordation of the notice of sale. . . ."

The ostensible purpose of the affidavit of mailing requirement is to notify the trustee "then of record" (§ 2924a, subd. (c)), that is, the trustee who has recorded a notice of default, and others who have requested and presumably received a copy of that notice of default under section 2924b, that a new trustee will be serving in place of the trustee who recorded the notice of default. The mailing requirement serves no useful purpose if applied to a substitution of trustee that is effected before any notice of default is recorded. Indeed, here there was no danger of confusing or misleading any interested party concerning the identity of the trustee conducting the foreclosure proceedings, because ReconTrust was the trustee that recorded the notice of default.

We should also point out that the execution by MERS of the substitution of trustee on March 5, 2009, had the effect of immediately transferring to ReconTrust the power to act as trustee under the foreclosing first deed of trust, even though the substitution of trustee was not recorded until June 16. Subdivision (d) of section 2934a states: "A trustee named in a recorded substitution of trustee shall be deemed to be authorized to act as the trustee under the mortgage or deed of trust for all purposes from the date the substitution is executed by the mortgagee, beneficiaries, or by their authorized agents. . . . Once recorded, the substitution shall constitute conclusive evidence of the authority of the substituted trustee or his or her agents to act pursuant to this section."8 (Italics added.) (See also Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868, 874-875 [recording of substitution of trustee in accordance with § 2934, subd. (a) transferred to new trustee "the exclusive power" to conduct a trustee's sale].)

C. The Foreclosure Sale is Not Invalid Because Assignment of the First Deed of Trust (From MERS to FNMA) Was Neither Notarized Nor Recorded Until After the Sale

Forbes next argues his complaint states facts sufficient to void the foreclosure sale because the corporate assignment of the foreclosing first deed of trust (the assignment), from MERS to FNMA, was neither notarized nor recorded until after the foreclosure sale took place on December 1. This argument is completely without legal support. There is no requirement that the assignment had to be either notarized or recorded before the foreclosure sale was conducted.

Both the assignment of the deed of trust (from MERS to FNMA) and trustee's deed (from ReconTrust to FNMA) are dated December 1, 2009, were notarized on December 4, and were recorded on December 8, 2009. Pursuant to the assignment, MERS assigned its beneficial interest in the foreclosing first deed of trust, "together with the note or notes therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said deed of trust. . . ." The trustee's deed states that the trustee, ReconTrust, sold the property at public auction on December 1, and that the grantee or purchaser, FNMA, was the highest bidder and purchased the property for $431,580.88.

Forbes argues that, under section 2932.5, the power of sale under the deed of trust could not be exercised, and the property could not be sold to FNMA, until after the assignment was duly acknowledged (i.e., notarized) and recorded. The statute does not remotely support Forbes's argument. The statute states: "Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded." (§ 2932.5.)

Simply put, section 2932.5 does not apply to deeds of trust, in which the power of sale is necessarily granted to a third party, the trustee. The statute only applies to mortgages in which the mortgagor or borrower has granted a power of sale to the mortgagee or lender. As explained in Roque v. Suntrust Mortg., Inc., supra, 2010 U.S.Dist. Lexis 11546, at pages *7 and *8: "Section 2932.5 applies to mortgages, not deeds of trust. It applies only to mortgages that give a power of sale to the creditor, not to deeds of trust which grant a power of sale to the trustee. Trustees regularly foreclose on behalf of assignees for the original beneficiary. [Citation.]" (Italics added.)

Accordingly, section 2932.5 does not support Forbes's argument that ReconTrust could not sell the property to FNMA until after the assignment was notarized and recorded. In relying on the portion of section 2932.5 that states, "[t]he power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded" (italics added), Forbes is conflating the power of sale under the foreclosing first deed of trust, which was held and exercised by the trustee, ReconTrust, with the beneficial interest under the deed of trust, which MERS assigned to FNMA on December 1. In contrast to a mortgage, in which the power of sale and beneficial interest are held by the mortgagee, the power of sale under a deed of trust may be held by a third party, the trustee, and here the power of sale was in fact held and exercised by a third party trustee.

Nor was the assignment required to be notarized or recorded in order to be effective between MERS and FNMA on December 1. Nothing in the comprehensive statutory scheme governing nonjudicial foreclosures, at sections 2924 through 2924l, contains such a requirement. (See, e.g., Wilson v. Pacific Coast Title Ins. Co. (1951) 106 Cal.App.2d 599, 602 [unacknowledged and unrecorded assignment of deed of trust effected "valid transfer of title"]; § 2934 [upon recordation, assignment of beneficial interest under deed of trust gives constructive notice of its contents to all persons].)

D. The Foreclosure Sale is Not Invalid Because the Same Person Executed the Assignment of the First Deed of Trust (From MERS to FNMA) and the Trustee's Deed (From ReconTrust to FNMA) on Behalf of All Three Entities

As noted, the assignment of the deed of trust (from MERS to FNMA) and trustee's deed (from ReconTrust to FNMA) are both dated December 1, 2009, were both notarized on December 4, and were both recorded on December 8, 2009. In addition, the same person, Angelica Del Toro, executed both instruments as "Assistant Secretary" on behalf of all three entities.

Forbes argues that Del Toro's execution of both instruments on behalf of all three entities on the same day constitutes "a Robosigning," raises "multiple issues related to the chain of title," and "illustrates a high level of fraudulent activity." These bare conclusions make no sense and are unsupported by any authority. Nothing in the statutory scheme governing nonjudicial foreclosures (§§ 2924-2924l) prevents the same person from acting as an agent on behalf of a trustee, a beneficiary under a deed of trust, and a successor beneficiary and purchaser at a foreclosure sale.

Nor has Forbes alleged any facts indicating that Del Toro was not authorized to sign both instruments on behalf of all three entities. Instead, he merely speculates that this may be so, and calls Del Toro's execution of the two instruments "Robosigning" and "fraudulent," without any factual basis or legal authority to support his conclusions. Forbes has therefore forfeited any legally cognizable issue arising from Del Toro's execution of the two instruments. (See, e.g., Interinsurance Exchange v. Collins (1994) 30 Cal.App.4th 1445, 1448 [issues raised on appeal without supporting argument or citation to authority are deemed waived].)

E. Forbes Cannot Set Aside the Sale By Challenging MERS's Authority to Assign Its Beneficial Interest Under the First Deed of Trust or the Note to FNMA

We next address Forbes's claim that the foreclosure sale and the trustee's deed conveying the property to FNMA are invalid because (1) MERS, as the mere "nominee" of the lender, did not have authority to assign its beneficial interest under the foreclosing first deed of trust to anyone, including FNMA; and (2) even if MERS's beneficial interest was properly assigned to FNMA, there is no indication that the $380,000 promissory note secured by the first deed of trust was also assigned to FNMA.

Specifically, Forbes argues that the first deed of trust, which identifies MERS as "acting solely as a nominee" of the lender, constitutes prima facie evidence that MERS did not have authority to assign its beneficial interest under the first deed of trust or the lender's interests in the underlying promissory note to FNMA. Hence, Forbes argues, his complaint states a cause of action to invalidate the sale and trustee's deed, and he should be allowed to conduct discovery to ascertain whether the beneficial interest under the first deed of trust and the right to collect the amounts due on the promissory note were, in fact, properly assigned to FNMA.

In Gomes, supra, 192 Cal.App.4th at pages 1154 through 1158, Division One of this court recently rejected a substantially identical claim to the one Forbes raises here. In Gomes, the borrower filed a lawsuit challenging MERS's authority to initiate nonjudicial foreclosure proceedings against his property after the trustee, ReconTrust, recorded a notice of default. (Id. at pp. 1151-1152.) The suit was filed before a notice of sale was recorded or the property was sold, and did not involve an assignment by MERS to a successor beneficiary, such as FNMA. (See ibid.) The court ultimately concluded that the trial court had properly sustained the defendants' demurrer to the borrower's complaint. (Id. at p. 150.)

In his complaint, the borrower alleged, based on information and belief, that MERS was without authority to initiate the nonjudicial foreclosure proceedings. (Gomes, supra, 192 Cal.App.4th at p. 1152.) Specifically, the borrower alleged, without any facts to support his claim, 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,'" and "the current owner of the Note did not authorize MERS to proceed with the foreclosure." (Ibid.)

The court first took note of MERS's rather unique role as a "nominee" or agent of lenders in private foreclosure proceedings: "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.' [Citation.] `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.' [Citation.]" (Gomes, supra, 192 Cal.App.4th at p. 1151.)

Next, the court pointed out that the borrower/plaintiff had not identified any legal authority to support his lawsuit, which was to determine whether the lender or current holder of the note had, in fact, authorized MERS to initiate the foreclosure proceedings. (Gomes, supra, 192 Cal.App.4th at p. 1154.) The court concluded that nothing in the comprehensive statutory scheme governing nonjudicial foreclosures suggested that a borrower could bring such a lawsuit, and that requiring MERS to demonstrate in court that it was, in fact, authorized to initiate the foreclosure proceedings would "be inconsistent with" providing the creditor/beneficiary with a "quick, inexpensive and efficient remedy" against a defaulting borrower. (Id. at p. 1154 & fn. 5.) The court distinguished several federal district court cases relied upon by the borrower as either not on point or as involving "a specific factual basis for alleging that the foreclosure was not initiated by the correct party." (Id. at pp. 1155-1156.)

Additionally, the court concluded that the borrower, by executing the deed of trust, had expressly agreed that MERS could initiate the foreclosure. (Gomes, supra, 192 Cal.App.4th at p. 1157.) This was a second, independent ground for concluding that the demurrer was properly sustained, in addition to the absence of legal authority to file suit in order to determine whether the current holder of the note had authorized MERS to initiate the foreclosure. (Ibid.) The court concluded that, because the borrower agreed that MERS could initiate the foreclosure, he could not state a cause of action to prevent MERS from proceeding with the foreclosure, or for damages, based on his claim that the lender or current holder of the note did not authorize MERS to initiate the foreclosure. (Ibid.)

Here, as in Gomes, Forbes argues that the deed of trust, by designating MERS "as acting solely as a nominee" for the lender, constitutes prima facie evidence that MERS was without authority to assign the lender's beneficial interest under the deed of trust, including the right to exercise the power of sale, together with the lender's interest in the secured promissory note, to FNMA. Hence, Forbes argues, as the borrower in Gomes argued, that his complaint states a factually sufficient cause of action to invalidate the sale and trustee's deed, and he should be allowed to conduct discovery to ascertain whether the beneficial interest under the first deed of trust and the lender's right to collect the amounts due on the note were, in fact, properly assigned to FNMA.

In contrast to Gomes, the question here is not whether MERS was authorized to initiate the present foreclosure proceedings. The question here, however, is only slightly different. It is whether MERS, as the nominee of the lender under the foreclosing first deed of trust, was authorized to assign the lender's beneficial interest under the first deed of trust to FNMA, together with the lender's right to collect the sums due on the note secured by the first deed of trust. This is not a critical distinction.

Like the court in Gomes, we conclude that, by executing the foreclosing first deed of trust, Forbes agreed that MERS could assign the lender's beneficial interest under the first deed of trust to another party, such as FNMA, together with the lender's interest in the underlying promissory note. For this reason, Forbes cannot state a cause of action to set aside the foreclosure sale or the trustee's deed based on allegations contrary to these acknowledgements. (See Gomes, supra, 192 Cal.App.4th at p. 1157.)

Here, as in Gomes, the first deed of trust identified MERS as "`acting solely as a nominee for Lender [GreenPoint] and Lender's successors and assigns.'" "`MERS is the beneficiary under this Security Instrument.'" (Gomes, supra, 192 Cal.App.4th at p. 1151, fn. omitted.) And here, as in Gomes, the first deed of trust also states: "`Borrower [i.e., Forbes] 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 foreclosure and sell the Property . . . .'" (Ibid., italics added.)

Thus, by executing the first deed of trust, Forbes agreed that MERS had the right to exercise, and could accordingly assign, "any or all" of the interests that Forbes granted to the Lender under the first deed of trust. These interests necessarily included the lender's beneficial interest under the deed of trust, "together with" the lender's right to collect all sums due under the note secured by the first deed of trust. Forbes thus cannot state a cause of action to invalidate the sale or trustee's deed based on his assertion that the deed of trust did not authorize MERS to initiate the foreclosure proceedings in the first instance, or based on his further assertion that the lender may not have, in fact, assigned the note to FNMA. (Cf. Kelley v. Upshaw (1952) 39 Cal.2d 179, 192 [mortgagee's purported assignment of mortgage without assignment of debt secured by the mortgage was "a legal nullity"].)

Federal district courts in California have similarly concluded that MERS, as a nominee of the lender under a deed of trust, may assign the lender's beneficial interest under the deed of trust to another party, pursuant to substantially identical language in the deeds of trust. (See, e.g., Hensley v. Bank of N.Y. Mellon (E.D.Cal. May 27, 2011, 1:10-CV-1316AWI SMS) 2011 U.S.Dist. Lexis 57362 at p. *7; Lane v. Vitek Real Estate Indus. Group, supra, 713 F.Supp.2d at p. 1099; Pantoja v. Countrywide Home Loans, Inc. (N.D.Cal. 2009) 640 F.Supp.2d 1177, 1188-1190.)

By contrast, a recent bankruptcy court decision reached a contrary conclusion based on substantially identical facts to those presented here. (U.S. Bank N.A. v. Skelton (In re Salazar) (S.D.Cal. Apr. 12, 2011, Bankr. No. 10-17456-MM13) 2011 Bankr. Lexis 1187 at pp. *3-5, 18-23 (Salazar).) Salazar concluded that the debtor and borrower under a deed of trust stated a prima facie case that the trustee's deed to U.S. Bank, the assignee of MERS and foreclosing beneficiary under the deed of trust, was void, thus entitling the debtor to protection from being evicted from the property through the automatic stay. (Id. at pp. *3, 25.)

Salazar reasoned that the trustee's deed was prima facie void principally because the assignment of the lender's beneficial interest from MERS to U.S. Bank was not recorded prior to the sale, in accordance with section 2932.5. (Salazar, supra, 2011 Bankr. Lexis 1187, at pp. *12-19.) The court distinguished Gomes as not involving an assignee/beneficiary at the time of the foreclosure, and also criticized Gomes for relying on the borrower's acknowledgement of MERS's authority to foreclose as nominal beneficiary. (Salazar, supra, at pp. *18-22.) The court took a very restrictive view of the language in the debtor's deed of trust, and opined that, despite the borrower/debtor's acknowledgement, "MERS still had no authority to nonjudicially foreclose under Salazar's [deed of trust]" and, in any event, concluded that the language in the deed of trust should not be construed to mean "that US Bank or MERS can contract away their obligations to comply with the foreclosure statutes," by recording the assignment under section 2932.5. (Salazar, supra, at pp. *21-22, fn. omitted.)

In any event, we are not bound by Salazar, and find its reasoning unpersuasive. In sum, the express language of the foreclosing first deed of trust, standing alone, precludes Forbes from maintaining a cause of action to set aside the foreclosure sale or the trustee's deed based on any claim that MERS was without authority to assign the beneficial interest, together with the note, to another party.

F. Forbes Cannot Set Aside the Sale Based on Any Irregularities That Render the Sale Voidable, Because He Did Not Allege He Could Have Timely Cured His Default or Redeemed the Property Prior to the Sale

We now address the trial court's principal and overriding reason for sustaining the demurrer, which was that Forbes did not, and apparently could not, allege he could redeem his property from foreclosure—had none of the alleged irregularities or Civil Code violations in the foreclosure proceedings occurred. In other words, the court ruled that Forbes could not state a cause of action to set aside the sale because he could not allege he was damaged by any of his claimed irregularities. We agree.

In California, it has long been settled that "[a] valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust." (Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117; Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 577 [applying tender rule to junior lienholder seeking to set aside foreclosure sale based on defective notice of sale].) "The rationale behind the rule is that if plaintiffs could not have redeemed the property had the sale procedures been proper, any irregularities in the sale did not result in damages to the plaintiffs." (FPCI RE-HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022.) Courts have consistently noted that the tender of payment rule applies to "any cause of action" for irregularities of any kind in the foreclosure proceedings and sale. (Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109; Humboldt Sav. Bank v. McCleverty (1911) 161 Cal. 285, 290.)

The tender of payment rule is based partly on the equitable maxim that one who seeks equity must do equity. (Humboldt Sav. Bank v. McCleverty, supra, 106 Cal. at pp. 290-291.) More fundamentally, the rule is also based on the equitable principle that a court of equity will not order the performance of a "useless act." (Arnolds Management Corp. v. Eischen, supra, 158 Cal.App.3d at pp. 578-579.) As one court explained: "It would be futile to set aside a foreclosure sale on the technical ground that notice was improper, if the party making the challenge did not first make full tender and thereby establish his ability to purchase the property. Thus, it is sensible to require that a trustor, whose default to begin with resulted in the foreclosure, give proof before the sale is set aside that he now can redeem the property." (United States Cold Storage v. Great Western Savings & Loan Assn. (1985) 165 Cal.App.3d 1214, 1225, italics added.)

Forbes did not allege he could have redeemed his property from foreclosure had the proceedings been free of any irregularities. Likewise, he did not allege he could have timely cured his default at least five days before the foreclosure sale (§ 2924c) but for any irregularities in the proceedings.

At oral argument, Forbes claimed that current California case law does not require a tender of payment a precondition to setting aside a voidable foreclosure sale. We allowed Forbes until 4:30 p.m. on the date of oral argument to submit a case citation supporting his claim to this court and opposing counsel. Forbes submitted a brief arguing that Bank of America v. La Jolla Group II (2005) 129 Cal.Ap.4th 706 and Dimock v. Emerald Properties, supra, 81 Cal.App.4th 868 stand for the proposition that no tender of payment is required.

Bank of America involved a nonjudicial foreclosure sale that was held void or invalid, because the trustee conducted it by mistake after the trustors tendered payment to the lender of the amount in arrears on the foreclosing deed of trust, and the lender accepted the payment and reinstated the loan. (Bank of America v. La Jolla Group II, supra, 129 Cal.App.4th at p. 709.) The lender did not notify the trustee that the loan had been reinstated, so the trustee proceeded with the nonjudicial foreclosure sale, unaware that the lender had reinstated the loan. (Id. at pp. 709-710.) Here, by contrast, Forbes never tendered payment of the amount in default before the foreclosure sale.

Dimock also involved a void trustee's sale. The trustee did not have the power to conduct the sale, having executed and recorded a substitution of trustee in favor of another trustee. (Dimock v. Emerald Properties, supra, 81 Cal.App.4th at pp. 872-876.) That is not the case here. Forbes has not alleged facts sufficient to show that ReconTrust was not the duly appointed trustee, fully authorized to conduct the nonjudicial foreclosure sale.

In sum, neither Bank of America nor Dimock support Forbes's claim that he was not required to cure his default, or show he could redeem the property from foreclosure, as a precondition of showing he was damaged by any irregularities in the foreclosure proceedings and sale. Furthermore, none of the irregularities Forbes alleged in his complaint and has pursued on this appeal have merit for the reasons discussed. Forbes's complaint thus not only fails to allege the critical damages element of any cause of action to set aside the sale, it also fails to allege a true irregularity in the proceedings. Thus, the demurrer was properly sustained based on Forbes's failure to allege a valid and viable tender. (Karlsen v. American Sav. & Loan Assn., supra, 15 Cal.App.3d at p. 117.)

G. Forbes Has Not Demonstrated a Reasonable Probability He Could Amend His Complaint to State a Factually Sufficient Cause of Action

Lastly, we note that when, as here, the demurrer was sustained without leave to amend, "we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. [Citation.] 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. [Citation.] The plaintiff has the burden of proving that an amendment would cure the defect. [Citation.]" (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) "[S]uch a showing can be made for the first time to the reviewing court . . . ." (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.)

Forbes has not demonstrated a reasonable possibility that he could amend his complaint to state a factually sufficient cause of action to set aside the sale or trustee's deed, or for monetary damages. The allegations of his complaint, together with the judicially-noticed documents adduced in support of the demurrer and on this appeal, belie any reasonable possibility that Forbes could make such an amendment.

IV. DISPOSITION

The judgment is affirmed. Defendants shall recover their costs on appeal.

Hollenhorst, Acting P.J. and Codrington, J., concurs.

FootNotes


1. Forbes sued five named defendants, including two entities that acted as servicers for the loan secured by the foreclosing deed of trust, namely, Countrywide Home Loans, Inc. (Countrywide) and BAC Home Loans Servicing, L.P. (BAC), the original beneficiary under the foreclosing first deed of trust, Mortgage Electronic Registration Systems, Inc. (MERS), the successor trustee under the foreclosing first deed of trust, ReconTrust Company, N.A. (ReconTrust), and, finally, the successor beneficiary under the foreclosing first deed of trust and purchaser at the foreclosure sale, Federal National Mortgage Association (FNMA) (collectively defendants).
2. The facts described in this section are taken from the allegations of Forbes's operative first amended complaint, the recorded documents attached to the complaint, and additional documents submitted by defendants in support of their demurrer, which the trial court judicially noticed.
3. Forbes did not name GreenPoint as a defendant.
4. All further statutory references are to the Civil Code unless otherwise indicated.
5. Three additional causes of action—a twelfth for "cancellation of void trustee's deed upon sale," thirteenth to "quiet title," and fifteenth for "injunctive relief" were asserted against a sixth defendant, Deutsche Bank. Deutsche Bank was apparently never served with the complaint and is not a party to this appeal.
6. Regarding the oral forbearance agreement, Forbes alleged that he and "B of A," apparently meaning BAC, entered into an oral forbearance agreement on or about August 25, 2009, whereby BAC agreed not to foreclose "as long as" Forbes provided faxes of his paystubs, tax returns, and "other pertinent documents upon request . . . ." Forbes did not allege that the oral forbearance agreement was conditioned on his payment of any portion of the amounts due on the loans, and asserted that the trustee's sale and FNMA's subsequent unlawful detainer action seeking his eviction violated the agreement.
7. In order to comply with the due diligence requirement of section 2923.5, the beneficiary or its or authorized agent must "first attempt" to contact the borrower by sending the borrower a first-class letter, including "a toll-free telephone number made available by [the United States Department of Housing and Urban Development (HUD)] to find a HUD-certified housing counseling agency." (§ 2923.5, subd. (g)(1).) Next, at least three attempts must be made to contact the borrower by telephone at different times on different days. ( subd. (g)(2)(A).) If the borrower does not respond within two weeks after attempts have been made to contact him by telephone, then a certified letter must be sent to the borrower. ( subd. (g)(3).) Additional requirements concerning the provision of a toll-free telephone number to contact the borrower and the posting of Web links on the borrower's Web site also apply. ( subd. (g)(4), (5).)
8. Although "[i]t is well settled that parties to a deed of trust may agree to a form of substitution of trustee other than that provided in section 2934a" ( (2003) , 390), here the terms of the first deed of trust do not derogate from section 2934, subdivision (d), which deems the substituted trustee to be fully authorized to act as trustee from the date the substitution of trustee is even if the substitution is not immediately recorded. The first deed of trust states: "Lender, at its option, may from time to time appoint a successor trustee to any Trustee appointed hereunder by an instrument executed and acknowledged by Lender and recorded in the office of the Recorder of the county in which the Property is located. The instrument shall contain the name of the original Lender, Trustee and Borrower, the book and page where this Security Instrument is recorded and the name and address of the successor trustee. Without conveyance of the Property, the successor trustee shall succeed to all the title, powers and duties conferred upon the Trustee herein and by Applicable Law. This procedure for substitution of trustee shall govern to the exclusion of all other provisions for substitution." Nothing in this language states or indicates a substitution of trustee shall not be deemed effective until recorded.

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