Maurice Heffernan, et al. v. Nationstar Mortgage, LLC, et al.

Case Number

24CV00900

Case Type

Hearing Date / Time

Wed, 11/13/2024 - 10:00

Nature of Proceedings

1. Demurrer of Defendant Nationstar Mortgage, LLC to Plaintiffs’ First Amended Complaint; and, 2. Demurrer of Defendant Newrez, LLC to Plaintiffs’ First Amended Complaint

Tentative Ruling

For Plaintiffs Maurice Heffernan and Susan Heffernan: Patricia Rodriguez                                

For Defendant Nationstar Mortgage, LLC dba Mr. Cooper: Andrea M. Hicks                                   

For Defendant Newrez, LLC fka Specialized Loan Servicing, LLC: Robert W. Norman Jr. and Alexandra Coronado King                                  

For Defendant Quality Loan Service Corporation: Daniel J. Goulding                                   

For Defendant Affinia Default Services: No appearance                                

For Defendant McCarthy & Holthus: No appearance

    

RULING

For the reasons set forth herein:

1. The demurrers to the first cause of action of the first amended complaint, for quiet title, is sustained, for failure to verify, with leave to amend.

2. The demurrers to the remaining causes of action are overruled.

3. Plaintiffs shall file and serve their verified second amended complaint no later than December 4, 2024. Defendants shall file and serve their answers to the verified second amended complaint per code.

Background

This action commenced on February 20, 2024, by the filing of the original complaint by Plaintiffs Maurice Heffernan and Susan Heffernan (collectively “Plaintiffs”) against several Defendants.

On March 22, 2024, this action was removed to federal Court based on federal question jurisdiction. On May 8, 2024, this action was remanded from federal Court because Plaintiffs dismissed all their federal claims.

On July 30, 2024, Plaintiffs filed their operative first amended complaint (“FAC”) against Defendants Nationstar Mortgage (“Nationstar”), Quality Loan Service Corporation (“Quality”), McCarthy & Holthus (“M&H”), Specialized Loan Servicing (Specialized Loan Servicing is now known as “Newrez,” and will be referred to as such), and Affinia Default Services (“Affinia”).

The FAC contains causes of action for: (1) Quiet Title; (2) Declaratory Relief; (3) Violation of Homeowner’s Bill of Rights; (4) Violation of Business & Professions Code section 17200; (5) Breach of Implied Covenant of Good Faith and Fair Dealing; (6) Negligence; and (7) Violation of Civil Code section 2924.12. The FAC, including attachments, is 212 pages long, and is based upon a non-judicial foreclosure of property located at 1202 Del Oro Avenue, Santa Barbara (“the property”), two loan agreements secured by the property, and assignments of deeds of trust.

Nationstar demurs to each cause of action of the FAC, on the grounds that each cause of action fails to state facts sufficient to constitute a cause of action.

Newrez demurs to the first, second, third, fourth, and fifth causes of action of the FAC (according to page 3 of its demurrer), on the grounds that each cause of action fails to set forth facts sufficient to state the cause of action against Newrez. Newrez claims, and provides documentation, that Plaintiffs have agreed to dismiss the third cause of action for violation of homeowners’ bill of rights and the sixth cause of action for negligence against Newrez. (King Decl., ¶ 7.) However, Plaintiffs have not dismissed those causes of action as to Newrez in this action. Also, the notice of demurrer misidentifies the order of the causes of action. For example: The third cause of action is for violation of the homeowners’ bill of rights. In the notice of demurrer, filed by Newrez, the third cause of action is represented to be violation of California Business & Professions Code sections 17200 et seq. and 17500, et seq.

Plaintiffs oppose the demurrers by way of a single document, rather than filing an opposition to each of the demurrers.

Analysis

Demurrer

“When any ground for objection to a complaint, cross-complaint, or answer appears on the face thereof, or from any matter of which the Court is required to or may take judicial notice, the objection on that ground may be taken by a demurrer to the pleading.” (Code Civ. Proc., § 430.30, subd. (a).) “Our consideration of the facts alleged includes ‘those evidentiary facts found in recitals of exhibits attached to [the] complaint.’ [Citation.]” (Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1250.)

As an initial note, much of the content of the demurrers by both Nationstar and Newrez contains arguments that would require the Court to look outside of the FAC, its attachments, and matters of which the Court may take judicial notice. To a large extent, the demurrers read more like motions for summary judgment rather than demurrers. Such arguments are not properly brought by way of demurrer and will not be considered.

“The party against whom a complaint or cross-complaint has been filed may object, by demurrer or answer as provided in Section 430.30, to the pleading on any one or more of the following grounds:

“(a) The Court has no jurisdiction of the subject of the cause of action alleged in the pleading.

“(b) The person who filed the pleading does not have the legal capacity to sue.

“(c) There is another action pending between the same parties on the same cause of action.

“(d) There is a defect or misjoinder of parties.

“(e) The pleading does not state facts sufficient to constitute a cause of action.

“(f) The pleading is uncertain. As used in this subdivision, “uncertain” includes ambiguous and unintelligible.

“(g) In an action founded upon a contract, it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct.

“(h) No certificate was filed as required by Section 411.35.” (Code Civ. Proc., § 430.10.)

“[A] Court must treat a demurrer as admitting all material facts properly pleaded, it does not, however, assume the truth of contentions, deductions or conclusions of law.” (Travelers Indem. Co. of Connecticut v. Navigators Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 358, citing Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

“To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the Plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)

First Cause of Action

for Quiet Title

Regarding an action in quiet title:

“In an ordinary action to quiet title it is sufficient to allege in simple language that the Plaintiff is the owner and in possession of the land and that the Defendant claims an interest therein adverse to him.” (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 740.) “The complaint need not state particularly the facts concerning the asserted invalidity or attack the instrument that is claimed to be a cloud on the Plaintiff’s title.” (Id. at p. 741.)

“The complaint shall be verified and shall include all of the following:

            “(a) A description of the property that is the subject of the action. In the case of tangible personal property, the description shall include its usual location. In the case of real property, the description shall include both its legal description and its street address or common designation, if any.

            “(b) The title of the Plaintiff as to which a determination under this chapter is sought and the basis of the title. If the title is based upon adverse possession, the complaint shall allege the specific facts constituting the adverse possession.

            “(c) The adverse claims to the title of Plaintiff against which a determination is sought.

            “(d) The date as of which the determination is sought. If the determination is sought as of a date other than the date the complaint is filed, the complaint shall include a statement of the reasons why a determination as of that date is sought.

            “(d) A prayer for the determination of the title of the Plaintiff against the adverse claims.” (Code Civ. Proc., § 761.020.)

Nationstar argues that Plaintiffs’ first cause of action fails because the claims are barred by res judicata and collateral estoppel, that Plaintiffs lack standing to challenge the assignments of deeds of trust, and that Plaintiffs fail to allege tender.

Newrez argues that Plaintiffs’ first cause of action fails because the complaint is not verified, Plaintiffs lack standing, Plaintiffs have not alleged that they have paid the outstanding debt on which the mortgage is based, that Plaintiffs have not alleged an offer of tender, and that Plaintiffs have not alleged that Newrez has an adverse claim to theirs.

In opposition, Plaintiffs set forth conclusory arguments that they have alleged sufficient facts. Plaintiffs fail to address most of the arguments made by Nationstar and Newrez, and fail to make any reference to specific portions of the overly long FAC.

Verification

By the plain language of Code of Civil Procedure section 761.020, a complaint for Quiet Title must be verified. Plaintiffs fail to address this issue. Because the complaint is not verified, the demurrer to the first cause of action will be sustained with leave to amend. For the below reasons, the other grounds for demurrer to the first cause of action will be overruled.

Res Judicata and Collateral Estoppel

Nationstar argues that Plaintiffs have already litigated their causes of action to quiet title on the same facts, and lost on the merits. Plaintiffs fail to address this issue.

In support of its argument, Nationstar requests that the Court take judicial notice of the Adversary Complaint filed on December 30, 2011, in the United States Bankruptcy Court, Central District of California, case number 9:11-ap-01413-RR, and Order granting Defendant HSBC’s motion for summary judgment, entered on October 22, 2012, in the same case. The adversary proceeding was between Plaintiffs and HSBC Bank USA, N.A. “ ‘In ruling on a demurrer based on res judicata, a Court may take judicial notice of the official acts or records of any Court in this state. [Citations].’ [Citation.]” (Boyd v. Freeman (2017) 18 Cal.App.5th 847, 855, fn. 3.) The Court takes judicial notice of the documents pursuant to Evidence Code section 452, subdivision (d).

“Claim preclusion applies when ‘ “(1) the decision in the prior proceeding is final and on the merits; (2) the present proceeding is on the same cause of action as the prior proceeding; and (3) the parties in the present proceeding or parties in privity with them were parties to the prior proceeding.’ ” [Citation.] Upon satisfaction of these conditions, claim preclusion bars “ ‘not only issues that were actually litigated but also issues that could have been litigated.’ ” [Citation.]” (Planning & Conservation League v. Castaic Lake Water Agency (2009) 180 Cal.App.4th 210, 226.)

While Nationstar sets forth the law with respect to res judicata and collateral estoppel, Nationstar fails to apply the law to the current action, or to show how the allegations of the FAC show on its face that the cause of action is barred. HSBC is mentioned in paragraph 8 of the FAC and in attachments to the FAC. However, neither the paragraph nor the attachments show that Nationstar was a party to the bankruptcy action or that it was in privity with HSBC. The bankruptcy filings, that the Court has taken judicial notice of, likewise do not disclose that Nationstar was a party or in privity with HSBC. As such, the demurrer based on this argument, by Nationstar, fails.

Standing

Plaintiffs allege that certain assignments of deeds of trust, that are germane to this action, are void. (FAC, ¶ 276.)

Nationstar and Newrez both argue that Plaintiffs lack standing to challenge the assignments of deeds of trust.

“ ‘Standing is the threshold element required to state a cause of action and, thus, lack of standing may be raised by demurrer.’ [Citation.]” (Robinson v. Southern (2020) 53 Cal.App.5th 476, 481.)

Standing is the only argument that Plaintiffs’ address, with respect to the quiet title action, in their opposition. In support of their opposition, Plaintiffs cite Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, (Yvanova).

In Yvanova, the California Supreme Court compared standing to challenge void assignments with voidable assignments in a similar context as the present action, ultimately holding that “a wrongful foreclosure Plaintiff has standing to claim the foreclosing entity’s purported authority to order a trustee’s sale was based on a void assignment of the note and deed of trust.” (Id. at p. 939.) “[B]orrowers have standing to challenge assignments as void, but not as voidable . . ..” (Ibid.)

Here, Plaintiffs have alleged void assignments, as opposed to voidable assignments. As such, Plaintiffs have standing and the argument by Nationstar and Newrez, that they do not, fails.

Offer of Tender

Both Nationstar and Newrez argue that Plaintiffs’ cause of action for quiet title fails because Plaintiffs have not alleged that they paid or tendered the amount owing under the mortgage agreements. Plaintiffs do not address the arguments in their opposition.

While both Nationstar and Newrez are correct that typically a borrower may not maintain an action in quiet title against a mortgagee without first paying the outstanding debt on which the mortgage is based, that is not always the case. Where it is “alleged the foreclosure was void and not merely voidable, tender was not required to state a cause of action for quiet title or for cancellation of instruments.” (Sciarratta v. U.S. Bank National Assn. (2016) 247 Cal.App.4th 552, 568, (Sciarratta).) As in Sciarratta, Plaintiffs here allege that the assignments are void, and not merely voidable, and that makes any foreclosure by either Defendant void. In such circumstances, tender need not be alleged and the demurrer on this ground fails.

Newrez’ Argument that

Plaintiffs Fail to Allege an Adverse Claim

Newrez argues that the exhibits attached to the FAC show that “the Trust” holds the beneficial interest in the “Junior Loan,” and that Newrez is merely the loan servicer that does not have an adverse claim in the property. That is not a defect that appears on the face of the complaint, from its attachments, or from matters of which this Court may take judicial notice. By way of the FAC, Plaintiffs allege that Newrez is claiming an interest in the property. (FAC, ¶ 4.) As such, the demurrer on this ground fails.

Second Cause of Action

for Declaratory Relief

The second cause of action, for declaratory relief, seeks a declaration that: “Plaintiffs’ MAURICE HEFFERNAN and SUSAN HEFFERNAN are the prevailing parties, and a Declaration that 1) Corporation Assignment of Deed of Trust recorded on August 23, 2010, as document # 2010-0045346, and subsequent Substitution of Trustee recorded on December 24, 2015, and 2) Assignment of Deed of Trust recorded on January 13, 2022, as document # 2022-0002344, and subsequent Substitution of Trustee recorded on July 26, 2023, all recorded in the Official Records of Santa Barbara County Recorder’s Office, are void and as such, all that flows from the void 1) Corporation Assignment of Deed of Trust, and Substitution of Trustee, and 2) Assignment of Deed of Trust, and Substitution of Trustee are void.” (FAC, ¶ 276.)

Nationstar does not provide any additional authority for its demurrer to the second cause of action other than those made with respect to the first cause of action.

Newrez argues that Plaintiffs’ claim for declaratory relief fails because: “(1) it seeks a determination of issues that will be determined in the underlying causes; (2) it fails along with the other failed claims; and (3) [it] improperly seeks to remedy a past wrong.

Again, Plaintiffs fail to directly address the arguments presented by way of the demurrers.

“Any person interested under a written instrument, excluding a will or a trust, or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, or with respect to the location of the natural channel of a watercourse, may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior Court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract. He or she may ask for a declaration of rights or duties, either alone or with other relief; and the Court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time. The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment. The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.” (Code Civ. Proc., § 1060.)

“It seems clear that a person who has rights flowing from a contract has an ‘ “interest” ’ in that contract, and should, in the discretion of the trial Court, be able to maintain an action to secure a declaration of the character and extent of those rights when an actual controversy exists. [Citation.]” (Gardiner v. Gaither (1958) 162 Cal.App.2d 607, 621-622.) “The entertainment of an action for declaratory relief is within the discretionary power of the trial Court.” (Id. at p. 622, fn. 1.)

Plaintiffs have pled sufficient facts to support their cause of action for declaratory relief and the demurrers to the second cause of action will be overruled.

Third Cause of Action

for Violation of Homeowners Bill of Rights

The Homeowners Bill of Rights (HBOR) is made up of several code sections and is “a complex set of enactments focused specifically on residential mortgages and passed as a legislative response to the ongoing mortgage foreclosure crisis in 2012. [Citations.] The HBOR is principally designed to ensure that “ ‘as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower’s mortgage servicer, such as loan modifications or other alternatives to foreclosure.’ ” [Citations.]” (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 295.)

Plaintiffs allege noncompliance with portions of the HBOR, and set forth specific alleged actions and omissions of the Defendants.

Nationstar’s argument does not attack the FAC. Rather, Nationstar’s argument is that it did not violate the HBOR, and Nationstar also makes arguments regarding the relief that Plaintiffs are potentially entitled to.

As noted above, Newrez claims that Plaintiffs have agreed to dismiss the violation of the HBOR claims as to Newrez. Due to this, Newrez does not demur to the third cause of action.

By not presenting any argument or authority that shows a defect on the face of the FAC, with respect to the third cause of action, Nationstar and Newrez have failed to make any showing that the cause of action does not state sufficient facts. As such, the demurrer to the third cause of action will be overruled.

Fourth Cause of Action

for Violation of Business & Professions Code

sections 17200 et seq. and 17500 et seq.

Business & Professions Code section 17200 et seq. pertains to “and unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.”

Nationstar argues that the cause of action fails because: (1) Plaintiffs lack standing to assert the claim, (2) Plaintiffs inadequately allege unlawful conduct, and (3) Plaintiffs cannot obtain injunctive or restitutionary relief.

Newrez argues that the cause of action fails because: (1) Plaintiffs’ claim fails as derivative of the “other failed claims’” and (2) Plaintiffs lack standing to state a claim under the Unfair Competition Law (UCL).

In order to establish a claim under the UCL, “a party must now (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.)

Plaintiffs argue that they suffered “ruination of credit, loss of equity in their Property and the forced legal action taken up in an effort to battle the looming unlawful foreclosure process of their home.” (Opp. p. 7, ll. 23-25.)

Despite Plaintiffs’ cursory argument, and failure to reference specific potions of the FAC, a review of the FAC shows that Plaintiffs have alleged economic injury as a result of the claimed unfair business practices of Defendants. “Actual damages include but are not limited to the over calculation and overpayment of interest on the Loan, the cost of repairing Plaintiffs’ credit, costs associated with removing the cloud on property title, loss of equity, and attorneys’ fees and costs . . ..” (FAC, ¶ 273.) Plaintiffs have alleged sufficient facts of standing.

Nationstar’s argument that Plaintiffs have inadequately alleged unlawful conduct also fails. Adequate facts are alleged. In fact, for pleading purposes, many more facts are alleged than is necessary, in the overly long FAC, to overcome demurrer.

Nationstar’s argument that Plaintiffs cannot obtain injunctive relief or restitution is not based on any defects that appear on the face of the complaint, its exhibits, or matters which the Court may judicially notice. The argument is improper at the demurrer stage where the Court is only concerned with the adequacy of the allegations of the FAC.

The demurrer to the fourth cause of action for violation of Business & Professions Code sections 17200 et seq. and 17500 et seq., will be overruled.

Fifth Cause of Action

for Violation of the Covenant of Good Faith and Fair Dealing

“ ‘[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) Plaintiff’s performance or excuse for nonperformance, 93) Defendant’s breach, and (4) the resulting damages to the Plaintiff.’ ” [Citation.} “ ‘ “The [implied] covenant of good faith and fair dealing [is] implied by law in every contract.” ’ ” [Citation.] The covenant is read into contracts and functions “ ‘ “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” ’ ” [Citation.] The covenant also requires each party to do everything the contract presupposes the party will do to accomplish the agreement’s purposes. [Citation.] A breach of the implied covenant of good faith is a breach of the contract [citation], and “ ‘breach of a specific provision of the contract is not . . . necessary’ ” to a claim for breach of the implied covenant of good faith and fair dealing [citation].” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244 (Thrifty).)

“A breach of the covenant of good faith and fair dealing does not give rise to a cause of action separate from a cause of action for breach of the contract containing the covenant.” (Smith v. International Brotherhood of Electrical Workers (2003) 109 Cal.App.4th 1637, 1644, fn. 3.)

Nationstar argues that the cause of action is inadequately pled because Plaintiff fails to identify any provision of any contract that Nationstar purportedly frustrated. The argument fails based on the holding of Thrifty that breach of a specific provision of the contract is not necessary.

Nationstar next argues that “when pleading the existence of a written contract, a Plaintiff must quote verbatim therefrom or attach it to the Complaint.” (Demurrer, p. 12, ll. 12-14.) This assertion, although made frequently, is simply untrue. The correct rule is that “a Plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.) Plaintiffs have adequately pled the material terms and legal effect of the relevant contracts.

Nationstar’s final argument, with respect to the fifth cause of action, is that the underlying loan contract provides for the remedy of foreclosure in the event of default. This, again, is arguing the merits of the case rather than any defect that appears on the face of the FAC, and is improper in a demurrer.

Newrez argues that the fifth cause of action fails because Newrez is not a party to the dead of trust and that, therefore, no contractual privity exists between Newrez and Plaintiffs. This argument is not directed at any defect that appears on the face of the complaint, and is not properly made as part of a demurrer.

Newrez next argues the same things as Nationstar. The arguments fail for the same reason.

Sixth Cause of Action

for Negligence

“To state a cause of action for negligence, a Plaintiff must allege (1) the Defendant owed the Plaintiff a duty of care, (2) the Defendant breached that duty, and (3) the breach proximately caused the Plaintiff’s damages or injuries.” (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 62.)

Nationstar argues that it owes no duty of care to Plaintiffs. As it believes that Plaintiffs have dismissed the negligence claim against it, Newrez provides no argument as to the negligence cause of action.

“In California, the test for determining whether a financial institution owes a duty of care to a borrower-client “ ‘ “involves the balancing of various factors, among which are [1] the extent to which the transaction was intended to affect the Plaintiff, [2] the foreseeability of harm to him, [3] the degree of certainty that the Plaintiff suffered injury, [4] the closeness of the connection between the Defendant’s conduct and the injury suffered, [5] the moral blame attached to the Defendant’s conduct, and [6] the policy of preventing future harm.” ’ ” [Citations.]” (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1098.)

At the pleading stage, it is not apparent from the face of the FAC that there is no possibility that Plaintiffs may present evidence of a duty based on the factors set forth above. The allegations of the FAC are sufficient to support a cause of action for negligence.

Seventh Cause of Action

for Violation of Civil Code section 2924.12

Civil Code section 2924.12 pertains to material violations of specified foreclosure provisions.

Nationstar does not make any direct arguments regarding the seventh cause of action. Rather, some of the arguments made regarding other causes of action touch upon the seventh. Nationstar’s demurrer to the seventh cause of action will be overruled for reasons mentioned above.

Newrez argues that the claim is improper because Plaintiffs voluntarily dismissed their HBOR claims against Newrez and are therefore not entitled to the relief requested. The argument fails. There is not a defect that appears on the face of the complaint that would support the sustaining of a demurrer to the seventh cause of action.

Amended Complaint

As the complaint is not verified, and it contains a cause of action for quiet title, Plaintiffs will be ordered to file and serve a verified second amended complaint. As the second amended complaint must be verified, Plaintiffs should go through the complaint and correct the many errors. For example: Paragraph 2 alleges that the property is in the County of Los Angeles. It clearly is not.

“The Plaintiff may not amend the complaint to add new causes of action without having obtained permission to do so . . .” (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) Plaintiffs may remove causes of action but may not add any new causes of action without first following the proper procedure for doing so.