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Reinholtz v. Select Portofolio Servicing


February 4, 2009


The opinion of the court was delivered by: Hon. Michael M. Anello United States District Judge


Pending before the Court is Plaintiff's ex parte motion for temporary restraining order. [Doc. No. 4].


In 2004, Plaintiff purchased his home on Geiger Court, in Chula Vista, Calif. The lender at the time was Downey Savings and Loan Association. Ex Parte Mot. for TRO [Doc. No. 4] at 4:6--13. In 2005, he refinanced his loan through Guaranty Bank, and got a loan in the sum of $805,000, and a revolving line of credit secured with the house from National City Bank, in the sum of $200,000. Id. In August of 2006, Plaintiff refinanced the loan on his house through First Franklin Bank, and was approved for a loan in the sum of $1,024,000. Id. At some point, Defendant SPS became the loan servicer. Id. at 2:14--17. Plaintiff discovered in December 2008, that First Franklin had either transferred or sold its interest in the loan to Wells Fargo Bank. Id. at 4:25--5:7. Plaintiff defaulted on the loan in mid-2008 and was served notice of default. Compl. [Doc. No. 1] at 5:14--20. In December 2008, Plaintiff arranged for a short-sale, in which the third-party buyer offered to pay $460,000 for the property. Wells Fargo, however, informed Plaintiff that it would not accept a short sale for less than $540,000. Ex Parte Mot. for TRO at 4:25--5:18.

On January 15, 2009, Plaintiff attempted to enter into a modification of the subject loan with SPS as Wells Fargo's representative, but SPS refused to consider a loan modification. Id. at 5:20--27. On January 16, 2009, Plaintiff received a letter from SPS indicating that it would be willing to accept $486,000 in lieu of the $1,060,050.64 owed to release "its" lien on the property. Ex. B to Ex Parte Mot. for TRO [Doc. No. 4] at 24. Plaintiff was unable to pay the amount set forth in the letter. Defendants have set a Trustee's sale for February 5, 2009, at 10 a.m. to foreclose on Plaintiff's home. Ex. A to Ex Parte Mot. for TRO [Doc. No. 4] at 23.

On January 28, 2009, Plaintiff filed a complaint alleging various violations under the Truth-In-Lending Act 15 U.S.C. § 1601, et seq., California's Business and Professions Code § 17200, et seq., and 12 U.S.C. § 2605, et seq.[Doc. No. 1]. Plaintiff also seeks relief for Fraudulent Omission and to Quiet Title. Id.

On February 3, 2009, Plaintiff filed its Ex Parte Motion for Temporary Restraining Order ("TRO"). [Doc. No. 4]. In the application, Plaintiff seeks to enjoin Defendants from foreclosing on his house, to compel production of various documents, and to compel Defendants to show cause why a preliminary injunction should not be granted in favor of Plaintiff, enjoining foreclosure or sale of Plaintiff's property during the pendency of this lawsuit. Ex Parte Mot. for TRO at 2:5--22.

On February 4, 2009 at 3:30 p.m., the Court held a hearing on Plaintiff's Ex Parte Motion for TRO.

Standard of Review

Rule 65(b) of the Federal Rules of Civil Procedure provides that a court may issue a TRO without notice to the adverse party where "specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant . . . ." FED. R. CIV. P. 65(b)(1)(A). The movant must also certify in writing any efforts made to give notice and the reasons why it should not be required. FED. R. CIV. P. 65(b)(1)(B). Although the restrictions imposed are stringent, these restrictions "reflect the fact that our entire jurisprudence runs counter to the notion of court action taken before reasonable notice and an opportunity to be heard has been granted both sides of a dispute." Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers, 415 U.S. 423, 438--39 (1974).

The standard for issuing a TRO is similar to the standard for issuing a preliminary injunction and requires that the party seeking relief show either "(1) a combination of likelihood of success on the merits and the possibility of irreparable harm, or (2) that serious questions going to the merits are raised and the balance of hardships tips sharply in favor of the moving party." Homeowners Against the Unfair Initiative v. Calif. Building Industry Assoc., Civil No. 06CV152 JAH (WMc), 2006 U.S. Dist. LEXIS 97023, *4 (S.D. Cal. Jan. 26, 2006) (citing Immigrant Assistance Project of the L.A. County of Fed'n of Labor v. INS, 306 F.3d 842, 873 (9th Cir. 2002)). "[T]hese two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." Dep't Parks & Rec. of Calif. v. Bazaar Del Mundo, Inc., 448 F.3d 1118, 1123 (9th Cir. 2006) (citations omitted). The underlying purpose of a TRO is to preserve the status quo and prevent irreparable harm before a preliminary injunction hearing may be held. Granny Goose Foods, 415 U.S. at 439 (1974); see also Reno Air Racing Ass'n v. McCord, 452 F.3d 1126, 1130--31 (9th Cir. 2006).


The Truth-In-Lending Act ("TILA"), which is contained in Title I of the Consumer Credit Protection Act, as amended (15 U.S.C. § 1601, et seq.), is intended to assure a meaningful disclosure of credit terms so that consumers can compare more readily various available terms and avoid the uninformed use of credit. 15 U.S.C. § 1601(a). TILA requires that creditors disclose to borrowers specific information, including finance charges, annual percentage rate, and the right to rescind a transaction. See, e.g., 15 U.S.C. §§ 1635, 1638. Regulation Z, 12 C.F.R. Part 226, is issued by the Board of Governors of the Federal Reserve System to implement TILA. See 12 C.F.R. § 226.1(a).

1. Notice

Plaintiff provides an affidavit by his attorney, in which the attorney demonstrates the attempts to give notice to Defendants via fax. Plaintiff has provided fax cover sheets in support of the notice requirement. The Court finds that Plaintiff has sufficiently demonstrated the actions taken to serve Defendants with notice of his application for TRO.

2. Irreparable Harm

Plaintiff is set to lose his home tomorrow at a foreclosure sale. Plaintiff contends that he will suffer irreparable harm because his residence is his primary residence. Plaintiff asserts that he has lived in the house for almost five years, during which time it has become a home rather than "just another piece of property." Plaintiff contends that if his home is sold at a foreclosure sale, he will be homeless, a prospect for which he is not prepared. Ex Parte Mot. for TRO at 7:2--22.

In addition, the Court is satisfied that Plaintiff has sought relief in the form of a TRO in a diligent manner. Plaintiff was notified of the foreclosure sale on January 7, 2009. Plaintiff subsequently contacted SPS to see if he could modify the loan. SPS declined, but then sent Plaintiff a letter on January 16, 2009, stating that it would accept payment of $486,000.00 in satisfaction of the loan if paid by January 30, 2009. On January 28, 2009, when it became apparent that Plaintiff could not come up with the funds and the parties could not negotiate any other remedies, Plaintiff filed the complaint. On February 3, 2009, Plaintiff filed the ex parte application for a TRO.

Plaintiff has demonstrated a showing of irreparable harm, that is strong---for Plaintiff to lose his house tomorrow would present a far greater hardship than postponing the foreclosure sale for a ten-day period to allow for an additional hearing and further briefing (especially since the Defendants have not had an opportunity to oppose Plaintiff's application in writing or otherwise).

2. Likelihood of Success on the Merits

Because the balance of hardships so clearly points in Plaintiff's direction, Plaintiff is allowed to make a lesser showing on the merits. See Johnson v. Cal. State Bd. of Accountancy, 72 F.3d 1427, 1430 (9th Cir. 1995) (holding that where balance of hardships tips sharply in plaintiff's favor, plaintiff need only show "fair chance of success on the merits"). Plaintiff contends that he has demonstrated violations of TILA and other various provisions for which he seeks relief, which shows a likelihood of success on the merits. Plaintiff has alleged facts in the verified complaint and the Ex Parte Motion for TRO that show a "fair chance of success on the merits" because Plaintiff's facts tend to show that Defendants committed various TILA violations, entitling him to rescission. There are serious questions, however, concerning whether Plaintiff's claims regarding Defendants standing under the "original title" theory have any merit based on recent cases dealing with this issue. For the time being, however, the Court finds that Plaintiff's allegations on the merits are sufficient to grant the temporary restraining order.

Having balanced the hardships with the likelihood of success on the merits, the Court finds that the inquiry tips in favor of Plaintiff. Accordingly, Plaintiff's Ex Parte Motion for TRO is hereby GRANTED.*fn1

3. Bond Requirement

Rule 65(c) states: "The Court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." Fed. R. Civ. P. 65(c). Here, Plaintiff asserts that a bond should not be required because "defendants are protected by the security interest they hold on plaintiff's home." Plaintiff, however, has failed to demonstrate that there is equity sufficient to pay the costs and damages if the TRO is ultimately found to be improper. Accordingly, the Court requires that Plaintiff post a cash bond of $5,000.00. This Order shall not become effective until the bond is paid in accordance with Southern District of California Local Civil Rule 65.1.2.

In conclusion, the Court hereby ORDERS: (1) All Defendants and their agents, assigns, employees, officers, attorneys, and representatives are enjoined and restrained from engaging in or performing any act to deprive Plaintiff of ownership or possession of the real property located at 2671 Geiger Creek Court, Chula Vista, California 91915 ("Property"), including but not limited to instituting, prosecuting or maintaining foreclosure or sale proceedings on the Property, from recording any deeds or mortgages regarding the Property or from otherwise taking any steps whatsoever to deprive Plaintiff of ownership in the Property, and in particular from proceeding with the sale of the Property scheduled for February 5, 2009.

(2) This temporary restraining order shall be binding upon the parties to this action and all other persons or entities who receive actual notice of this order by personal service or other acceptable means of service.

(3) With respect to all Defendants, Plaintiffs shall serve all Defendants with a copy of this Order no later than February 9, 2009, together with all other documentation filed with the Court in this action.

(4) This temporary restraining order is entered this 4th day of February, 2009 at 6:15 p.m.

(5) A hearing on Plaintiff's motion for preliminary injunction is set for February 19, 2009 at 10 a.m. in Courtroom 5.

(6) By February 13, 2009, Defendants shall submit brief(s)*fn2 in opposition to the preliminary injunction. Any brief SHALL NOT EXCEED twenty-five (25) pages.

(7) By February 17, 2009, Plaintiff shall submit a reply to the opposition, if any, and it SHALL NOT EXCEED ten (10) pages.


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